Monday, November 10, 2008

Don’t Take Candy from Strangers, Especially Strange Economists

A lot of economics is actually based on trust. If I purchase something from you, I trust that you will not sell me something that you know to be bad. In the US there are mechanisms to sue or get retributions if you are knowingly or unknowingly sold a faulty good. In developing countries a lack of trust can hinder the ability to get business done. Dean Karlan at Yale has been one of the leaders in research on the role of trust and its impact on social capital. Karlan has used games across the world to help measure social capital.

Lately though Karlan’s work has turned to US politics. In a recent paper he wrote with a number of others, the trust of New Haven children was tested. The paper received a recent write up in Slate. The abstract describes the experiment below:


We conducted experiments during trick-or-treating at Halloween, four days prior to the 2008 presidential election. We decorated one side of a porch with Obama material and the other with McCain material. Some children are asked to choose a side to get an equal quantity of candy, whereas other children are offered more candy to go to the McCain side. At the candy table, each child chooses between a clear plastic bag and a brown paper bag, thus revealing their level of trust or comfort with ambiguity. We find that, in a predominantly liberal neighborhood, children choose the Obama table and continued to do so even upon the promise of more candy at the McCain table. We also find that Obama supporters, identified as those who choose the Obama table, are more likely than to take the brown bag of candy than the McCain supporters, identified as those who choose the McCain table.

These results mimic results from the General Social Survey in which supporters of Kerry over Bush in 2004 are more trusting.


I think the main lesson we can garner though is to not trust economists with candy.

h/t to Chris Blattman
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1 comment:

rjgitter said...

It is also interesting to think about the role of trust in the recent housing crisis. Essentially, as I see it, banks and other institutions were able to sell mortgages because rating agencies said the package of loans had an extremely high likelihood of almost everyone paying off the loan. The banks hired the rating agencies. If the rating agency gave a bad evaluation to the package of loans, then the bank would not hire them. The loan rating agencies realized that the only way to get business was to give favorable ratings. Investors would buy these packages of mortgages trusting the rating agencies. Yep, trust is important and too often overlooked in economics.

Much of this is my interpretation of Blinder's piece in the New York Times. http://www.nytimes.com/2007/09/30/business/30view.html