Trust and Cheating

When we take a cab we may feel cheated if the driver takes an unnecessarily long route despite the lack of a contract or promise to take the shortest possible path. Is the behavior of the driver affected by beliefs about our cheating notions, and where do his beliefs come from? For that matter, where do our cheating notions come from, and how do they color our own decisions? We address these questions in the context of a trust game by asking participants directly about their personal notions of cheating. We find that both parties to a trust exchange have personal notions of what constitutes cheating; that these notions have a bimodal distribution; and that cheating notions are determined by parentally-transmitted values. We think about cheating notions as moral expectations, which provide a micro-foundation for guilt which extends the scope for empirical applications of guilt aversion theory. We document that cheating notions substantially affect decisions on both sides of the trust exchange. JEL Classification: A1, A12, D1, O15, Z1