Trust under the Prospect Theory and Quasi-Hyperbolic Preferences: A Field Experiment in Vietnam

Abstract

We conduct a field experiment in Vietnamese villages to explore the effect of the prospect theory and of quasi-hyperbolic time preferences parameters on trust and trustworthiness. We find that risk aversion, loss aversion, and present bias do not influence trustors' decisions, but higher time discounting increases the amount sent to trustees in the south of Vietnam and probability weighting decreases it in the north. If time discounting and loss aversion do not influence trustworthiness, we show that more risk-averse and less present-biased trustees return a higher share of their wealth to the trustors. These results suggest that adopting a perspective other than the expected utility theory and the exponential-discounting approach of time preferences enables one to uncover some channels by which risk and intertemporal time preferences influence trusting behavior in societies.