DP5127 Neuroeconomic Foundation of Trust and Social Preferences

Author(s): Ernst Fehr, Urs Fischbacher, Michael Kosfeld
Publication Date: July 2005
Keyword(s): foundation of trust, neuroconomic, social preferences
JEL(s): A13, C90
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=5127

This paper discusses recent neuroeconomic evidence related to other-regarding behaviours and the decision to trust in other people’s other-regarding behaviour. This evidence supports the view that people derive non-pecuniary utility (i) from mutual cooperation in social dilemma (SD) games and (ii) from punishing unfair behaviour. Thus, mutual cooperation and the punishment of free riders in SD games is not irrational, but better understood as rational behaviour of people with corresponding social preferences. We also report the results of a recent study that examines the impact of the neuropeptide Oxytocin (OT) on trusting and trustworthy behaviour in a sequential SD. Animal studies have identified Oxytocin as a hormone that induces pro-social approach behaviour, suggesting that it may also affect pro-social behavior in humans. Indeed, the study shows that subjects given Oxytocin exhibit much more trusting behaviour, suggesting that OT has a direct impact on certain aspects of subjects’ social preferences. Interestingly, however, although Oxytocin affects trusting behaviour, it has no effect on subjects’ trustworthiness.