Social distance in a virtual world experiment

We conduct a field experiment to explore the effect of social distance on the choice of economic opportunities in a virtual world community. We design trust games with partner selection, in which potential responders vary in social distance from the proposer, and the investment multiplier increases with social distance. The proposer can choose between the two trust games with the two different responders. This design allows us to study how individuals make decisions when it involves tradeoffs between economic opportunities and social distance. We compare participants’ behavior to that in a benchmark standalone trust game and investigate three questions: (1) To what extent do proposers prefer to sacrifice potential payoff in favor of lower social distance, and to what extent such choices are rational? (2) Is there evidence for reciprocity by the chosen party? (3) To what extent do preferences over the passive player enter this decision? We find that proposers are more likely to select socially closer responders despite the lower rate of investment returns, and the latter reciprocate by returning a higher proportion than socially distant responders. The choice of socially distant responders does not increase significantly with the investment returns.