What you don’t know won’t hurt you: a laboratory analysis of betrayal aversion
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- Aimone, J.A. & Houser, D. Exp Econ (2012) 15: 571. doi:10.1007/s10683-012-9314-z
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Recent research argues “betrayal aversion” leads many people to avoid risk more when a person, rather than nature, determines the outcome of uncertainty. However, past studies indicate that factors unrelated to betrayal aversion, such as loss aversion, could contribute to differences between treatments. Using a novel experiment design to isolate betrayal aversion, one that varies how strategic uncertainty is resolved, we provide rigorous evidence supporting the detrimental impact of betrayal aversion. The impact is substantial: holding fixed the probability of betrayal, the possibility of knowing that one has been betrayed reduces investment by about one-third. We suggest emotion-regulation underlies these results and helps to explain the importance of impersonal, institution-mediated exchange in promoting economic efficiency.