Skip to main content
Log in

Market institutions and the evolution of culture

  • Article
  • Published:
Evolutionary and Institutional Economics Review Aims and scope Submit manuscript

Abstract

We find experimental evidence suggesting that market institutions are capable of developing their own cultures by influencing generalized and individualized trust. We employ two different markets in this study: the first market fully and automatically enforces all agreed-upon contracts; and the second market offers no such enforcement and allows subjects to defect on previously agreed-upon contracts. We find that a type of culture where people treat one another more or less equally and indiscriminately emerges with the first market, while a culture where people differentiate between the trustworthy and the untrustworthy emerges with the second market. While generalized trust remains the same across both treatments, individualized trust was only important in the treatment where contracts were not enforced in the experimental market. In the treatment where the market offered no enforcement, subjects exhibited less trust towards those with whom they had developed negative relationships and reciprocated at higher levels to those with whom that had developed positive relationships.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Subscribe and save

Springer+ Basic
EUR 32.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or Ebook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Fig. 1
Fig. 2

Similar content being viewed by others

Notes

  1. Several empirical studies have used trust as a proxy for culture (e.g., Knack and Keefer 1997; Tabellini 2010).

  2. See Alesina and Giuliano (2015) for a comprehensive overview of the empirical research in economics that concludes culture matters for economic outcomes.

  3. While we specifically focus on market institutions here, Ockenfels and Weimann (1999) more broadly addresses formal institutions. Their study speaks to how the types of institutions to which individuals are exposed can influence their social and cultural norms, which in turn inform their economic decisions. They attribute apparent cultural differences between eastern and western Germans to their exposure to socialism or capitalism during the Cold War. “After the end of the cold war, we can now examine cultural differences, namely differences in the cooperation and solidarity behavior of subjects living in former East and former West Germany. Eastern subjects grew up in a socialist planned economy, while western subjects have been socialized in a market-oriented environment” (Ockenfels and Weimann 1999, 276).

  4. There was one Market ZE session with twelve subjects. In this session, the market consisted of six buyers and six sellers. Comparisons showed the Market ZE session with twelve subjects to be no different from those with eight subjects (analysis not included in this study).

  5. Coincidentally, no two buyers received the same value within the same round.

  6. For clarification, the computer displayed no information about executed contracts in past trading rounds. We employed record sheets to allow subjects to carry their own market histories, which we further discuss in Sect. 3.4.

  7. This is the original, unmodified trust game as implemented by Berg, Dickhaut and McCabe (1995).

  8. In an ideal laboratory economic experiment, any systematic difference(s) observed between treatments (i.e., the main/treatment effect) is a direct result of a change(s) in the decision environment operationalized through the experimental design itself. In such cases, the experimenter is able to then speak about her hypothesis by linking the main design manipulation to the observed effect. The worst-case scenario for such an experiment would be one where the main effect is, instead, a direct result of a fundamental difference across treatments at the subject-level (and not of the main design manipulation). To mitigate the possibility of the worst-case scenario, experimentalists have designed and adopted a best-faith recruiting method where participants for an experiment are randomly selected from the same subject pool. While not a guarantee, this random sampling method assuages experimenters that (1) a representative sample was chosen for each of the various treatments and (2) any biases specific to this subject pool would then be minimized as an issue for their results. Since we adopted this standard recruiting method, we are confident that we had comparable samples in Markets ZE and FE treatments. Note that this is not necessarily true of all experimental studies in economics; some studies do want to examine how different groups of people (e.g., members of different cultures, countries, age groups, or the different sexes) behave in the same decision environment. In those experimental studies, any systematic difference(s) observed at the treatment-level would be attributed to how these groups are fundamentally different.

  9. One subject opted to not fully complete the survey and another chose not to complete the risk attitude measure. The graduate students were not working on an economics degree and were previously not acquainted with either of the authors.

  10. In the experimental economics literature, there are studies that speak to how first impressions can matter for economic decisions. For instance, Eckel and Petrie (2011) and Centorrino et al. (2015) find that appearances matter for trust games. Castillo and Petrie (2010) report that subjects utilize race to predict economic behavior when payoff relevant information is absent. To the best of our knowledge, there is no experimental literature that directly addresses last impressions; last impressions, as defined here, differ from last round (or end-of-game) effects because our subjects interact with each other again after the last trading round. The closest analogy may be the restart effect. Andreoni (1988), for example, finds that restarting a public goods game has a disparate effect on stranger- and partner-plays.

  11. This is, of course, not to say that objective facts about what happened do not matter; it is simply that our primary interest in this study was our subject’s perceptions.

  12. Several subjects misreported their trading partner’s identities onto the market record sheets, thus affecting the total number of positive and negative interactions they had with a particular trading partner. Because this paper seeks to understand how a subject’s perception about a trading partner and their shared relationship affects the trust and reciprocity he exhibits to the said trading partner, we do not view the subject errors to be an issue. It should be noted, however, that the significance of our results (Sect. 5) becomes even stronger if we use z-Tree records instead of subject-reported records (analysis not included in this study).

  13. The Market ZE session with twelve subjects generates a total of 36 possible buyer–seller relationships.

  14. We rationalize that enjoying a positive relationship with a person, for example, does not preclude us from enjoying a positive relationship with another person. Furthermore, looking at just those buyer–seller pairs who interacted at least once on the market, the median number of interactions per trading partner is 2 with the midspread occurring between 1 and 3 for both Markets FE and ZE. Hence, choosing to interact with a specific trading partner in a trading round does not seem to have cost the other three potential trading partners the opportunity to interact and form relationships with the subject.

  15. For this analysis, we exclude any subject who reported that they held dual (or more) citizenships or that they belonged to more than one race.

References

  • Alesina A, Giuliano P (2015) Culture and institutions. J Econ Lit 53(4):898–944

    Article  Google Scholar 

  • Andreoni J (1988) Why free ride? Strategies and learning in public goods experiments. J Public Econ 37:291–304

    Article  Google Scholar 

  • Arrow K (1972) Gifts and exchange. Philos Public Aff 1:343–362

    Google Scholar 

  • Barr A, Serra D (2010) Corruption and culture: an experimental analysis. J Public Econ 94(11–12):862–869

    Article  Google Scholar 

  • Berg J, Dickhaut J, McCabe K (1995) Trust, reciprocity and social history. Games Econ Behav 10:122–142

    Article  Google Scholar 

  • Brandts J, Riedl A (2016) Market competition and efficient cooperation. CESifo Working Paper Series No. 5694

  • Buchan N, Croson R, Dawes R (2002) Swift neighbors and persistent strangers: a cross-cultural investigation of trust and reciprocity in social exchange. Am J Soc 108:168–206

    Article  Google Scholar 

  • Burlando R, Hey JD (1997) Do anglo-saxons free-ride more? J Public Econ 64(1):41–60

    Article  Google Scholar 

  • Carpenter JP, Daniere AG, Takahashi LM (2004) Cooperation, trust, and social capital in Southeast Asian urban slums. J Econ Behav Org 55:533–551

    Article  Google Scholar 

  • Castillo M, Petrie R (2010) Discrimination in the lab: does information trump appearance? Games Econ Behav 68(1):50–59

    Article  Google Scholar 

  • Centorrino S, Djemai E, Hopfensitz A, Milinski M, Seabright P (2015) Honest signaling in trust interactions: smiles rated as genuine induce trust and signal higher earning opportunities. Evol Hum Behav 36(1):8–16

    Article  Google Scholar 

  • Chamberlin EH (1948) An experimental imperfect market. J Polit Econ 56(2):95–108

    Article  Google Scholar 

  • Chuah S-H, Hoffman R, Jones M, Williams G (2007) Do cultures clash? Evidence from cross-national ultimatum game experiments. J Econ Behav Org 64(1):35–48

    Article  Google Scholar 

  • Costa-Gomez M, Zauner KG (2001) Ultimatum bargaining behavior in Israel, Japan, Slovenia, and the United States: A social utility analysis. Games Econ Behav 34(2):238–269

    Article  Google Scholar 

  • Eckel CC, Petrie R (2011) Face value. Am Econ Rev 101(4):1497–1513

    Article  Google Scholar 

  • Ensminger J (2004) Market integration and fairness: evidence from ultimatum, dictator, and public good experiments in East Africa. In: Henrich J, Boyd R, Bowles S, Camerer C, Fehr E, Gintis H (eds) Foundations of human sociality. Oxford University Press, Oxford, pp 356–381

    Chapter  Google Scholar 

  • Ensminger J, Cook K (2014) Pro-sociality in rural America: evidence from dictator, ultimatum, public goods, and trust games. In: Ensminger J, Henrich J (eds) Experimenting with social norms: fairness and punishment in cross-cultural perspective. The Russell Sage Foundation, New York, pp 445–464

    Google Scholar 

  • Fehr E, Gachter S (2000) Fairness and retaliation: the economics of reciprocity. J Econ Perspect 14(3):159–181

    Article  Google Scholar 

  • Fehr E, Kirchsteiger G, Riedl A (1993) Does fairness prevent market clearing? An experimental investigation. Q J Econ 108:437–459

    Article  Google Scholar 

  • Fischbacher U (2007) z-Tree: Zurich toolbox for ready-made economic experiments. Exp Econ 10(2):171–178

    Article  Google Scholar 

  • Foddy M, Yamagishi T (2009) Group-based trust. In: Cook K, Levi M, Hardin R (eds) Whom can we trust?. Russell Sage Foundation, New York, pp 17–41

    Google Scholar 

  • Fukuyama F (1995) Trust: the social virtues and the creation of prosperity. Hamish Hamilton, London

    Google Scholar 

  • Geertz C (1973) The interpretation of cultures. Basic Books, New York

    Google Scholar 

  • Greif A (1994) Cultural beliefs and the organization of society: a historical and theoretical reflection on collectivist and individualist societies. J Polit Econ 102(5):912–950

    Article  Google Scholar 

  • Hayek FA (1945) The use of knowledge in society. Am Econ Rev 35(4):519–530

    Google Scholar 

  • Hayek FA (1976) Law, legislation, and liberty, volume 2: The mirage of social justice. University of Chicago Press, Chicago

    Google Scholar 

  • Hemesath M, Pomponio X (1998) Cooperation and culture: students from China and the United States in a prisoner’s dilemma. Cross Cult Res J Comp Soc Sci 32(2):171–184

    Article  Google Scholar 

  • Henrich J (2000) Does culture matter in economic behavior? Ultimatum game bargaining among the Machiguenga of the peruvian Amazon. Am Econ Rev 90(4):973–979

    Article  Google Scholar 

  • Henrich J, Boyd R, Bowles S, Camerer C, Gintis H, McElreath R, Fehr E (2001) In search of homo-economicus: behavioral experiments in 15 small-scale societies. Am Econ Rev 91:73–78

    Article  Google Scholar 

  • Henrich J, Boyd R, Bowles S, Camerer C, Fehr E, Gintis H (2004) Foundations of human sociality. Oxford University Press, Oxford

    Book  Google Scholar 

  • Henrich J, Boyd R, Bowles S, Camerer C, Fehr E, Gintis H, McElreath R, Alvard M, Barr A, Ensminger J, Smith Henrich N, Hill K, Gil-White F, Gurven M, Marlowe F, Patton J, Tracer D (2005) “Economic Man” in cross-cultural perspective: behavioral experiments in 15 small-scale societies. Behav Brain Sci 25:795–855

    Google Scholar 

  • Henrich J, Ensminger J, McElreath R, Barr A, Barrett C, Bolyanatz A, Cardenas J, Gurven M, Gwako E, Henrich N, Lesorogol C, Marlowe F, Tracer D, Ziker J (2010) Markets, religion, community size, and the evolution of fairness and punishment. Science 327:1480–1484

    Article  Google Scholar 

  • Herz H, Taubinsky D (2017) What makes a price fair? An experimental study of transaction experience and endogenous fairness views. J Eur Econ Assoc 16:316–352

    Article  Google Scholar 

  • Holm HJ, Danielson A (2005) Tropic trust versus nordic trust: experimental evidence from Tanzania and Sweden. Econ J 115:505–532

    Article  Google Scholar 

  • Holt C, Laury S (2002) Risk aversion and incentive effects. Am Econ Rev 92(5):1655–1655

    Article  Google Scholar 

  • Johnson N, Mislin A (2011) Trust games: a meta-analysis. J Econ Psychol 32:865–889

    Article  Google Scholar 

  • Knack S, Keefer P (1997) Does Social capital have an economic payoff? A cross-country investigation. Q J Econ 112(4):1251–1288

    Article  Google Scholar 

  • Lavoie D (1985) The market as a procedure for discovery and conveyance of inarticulate knowledge. Comp Econ Stud 28:1–19

    Google Scholar 

  • Levine RV, Norenzayan A, Pilbrick K (2001) Cross-cultural differences in helping strangers. J Cross Cult Psychol 32(5):543–560

    Article  Google Scholar 

  • McCabe KA, Rassenti SJ, Smith VL (1996) Game theory and reciprocity in some extensive form games. Proc Natl Acad Sci USA 93(23):13421–13428

    Article  Google Scholar 

  • North DC (1990) Institutions, institutional change and economic performance. Cambridge University Press, Cambridge

    Book  Google Scholar 

  • Ockenfels A, Weimann J (1999) Types and patterns: an experimental East–West-German comparison of cooperation and solidarity. J Public Econ 71(2):275–287

    Article  Google Scholar 

  • Okun AM (1981) Prices and quantities: a macroeconomic analysis. Brookings Institution Press, Washington, DC

    Google Scholar 

  • Oosterbeek H, Sloof R, van de Kuilen G (2004) Cultural differences in ultimatum game experiments: evidence from a meta-analysis. Exp Econ 7(2):171–188

    Article  Google Scholar 

  • Renner E, Tyran J-R (2004) Price rigidity in customer markets. J Econ Behav Org 55:575–593

    Article  Google Scholar 

  • Roth A (1995) Bargaining experiments. In: Kagel J, Roth A (eds) Handbook of experimental economics. Princeton University Press, Princeton, pp 253–348

    Google Scholar 

  • Roth AE, Prasnikar V, Okuno-Fujiwara M, Zamir S (1991) Bargaining and market behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: an experimental study. Am Econ Rev 81:1068–1095

    Google Scholar 

  • Storr VH (2013) Understanding the culture of markets. Routledge, New York

    Book  Google Scholar 

  • Tabellini G (2010) Culture and institutions: economic development in the regions of Europe. J Eur Econ Assoc 8(4):677–716

    Article  Google Scholar 

  • Tracer D (2004) Market integration, reciprocity, and fairness in rural Papua New Guinea: results from a two-village ultimatum game experiment. In: Henrich J, Boyd R, Bowles S, Camerer C, Fehr E, Gintis H (eds) Foundations of human sociality. Oxford University Press, Oxford, pp 232–259

    Chapter  Google Scholar 

  • Tu Q, Bulte E (2010) Trust, market participation and economic outcomes: evidence from rural China. World Dev 38(8):1179–1190

    Article  Google Scholar 

  • Weimann G (1994) Individual behaviour in a free-riding experiment. J Public Econ 54(2):185–200

    Article  Google Scholar 

Download references

Acknowledgements

This paper has been presented at BEEMA Conference (2015), North American Economic Science Association (2016) and Southern Economic Association (2016) as “Learning Whom to Trust.” We thank the participants of these conferences and our other colleagues at ICES, The Mercatus Center and Saint Vincent College for helpful comments and suggestions. This work was funded by The Mercatus Center at George Mason University.

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Ginny Seung Choi.

Ethics declarations

Conflict of interest

On behalf of all authors, the corresponding author states that there is no conflict of interest. All remaining errors are our own.

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Choi, G., Storr, V.H. Market institutions and the evolution of culture. Evolut Inst Econ Rev 15, 243–265 (2018). https://doi.org/10.1007/s40844-018-0103-z

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s40844-018-0103-z

Keywords

JEL Classification

Navigation