Draft:Trust Game

The trust game is one of the foundational games in experimental economics and behavioral economics.

In the basic two-player game, there are two players, each of whom is endowed with an equal initial endowment.

One of the two players is a first mover-- sometimes referred to as the Trustor-- who chooses between Invest and Not Invest. Not investing guarantees the first mover his initial endowment as a sure outcome. Investing transfer the entire invested amount by the first mover to the second mover, multiplied by 3. That invested amount is subtracted from the first mover's endowment.

If the first mover invests, the second mover-- referred to as a Trustee-- receives the entire investment of the fist mover, multiplied by 3. He can choose how much to transfer back to the first mover.

If the second mover transfer any amount over 1/3 of the investment to the first mover, then the first mover is as well off as he would have been had he not invested. However, the second mover has a strategic dominance in the sub-game of transferring back nothing at all.

By backward induction, the first mover can expect to receive nothing, and therefore he is better off not investing.

The trust game is sometimes erroneously referred to as a variant of the dictator game.