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302 Chapter 11 Trust in Children William T. Harbaugh, Kate Krause, Steven G. Liday Jr., and Lise Vesterlund M any trade relationships are not covered by complete contracts . Although the involved parties may prefer a legally binding agreement, it is often too costly to construct a contract that fully accounts for the possible contingencies of the relationship . Absent such contracts, otherwise advantageous trades may be expected to fail as the parties each choose their payoff-maximizing actions. Many real-world examples demonstrate that this need not be the case. In particular, there is substantial evidence that we instead rely on a set of social contracts, whereby we trust that others will fulfill their part of a nonbinding agreement and abide by such agreements when they trust us to do so. Even when interacting with complete strangers, we often work under the assumption that they can be trusted. When traveling we encounter courteous cab drivers, waiters, and porters who all believe, despite the one-shot interaction of our relationship, that we will reward good service with a good tip. When making one-time purchases, we trust that the conditions of delivery will be acceptable. When selling fruit from an unattended road stand, the farmer trusts that customers will pay for the produce.1 By trusting and rewarding trust we are able to sustain a society that is superior to what we could expect absent substantial contractual agreements. Despite their obvious advantages, trust and trustworthy behavior are puzzling phenomena. In trusting others, self-interested people purposefully put themselves in situations in which other self-interested people can take advantage of them, and when rewarding trust we choose costly actions that merely improve the well-being of others. Trust in Children 303 This raises the question of how we acquire these trusting behaviors. If their presence allows us to sustain a superior society, then it may be argued that these traits are an outcome of evolution. Perhaps we are genetically coded to be trusting and trustworthy. The substantial degree of heterogeneity in trust across both countries and individuals makes it questionable that genetic coding alone can explain these behaviors .2 Perhaps trust and the rewarding of trust are behaviors that develop over time. Children may learn from the innumerable lectures parents give about whom to trust, when to trust them, how far to trust, and how to respond when someone trusts them. Even if we take the skeptical view that these lectures are just talk, it is still possible that children learn from the many examples that parents set for their children in exhibiting trusting and trustworthy behavior. If these traits are developed over time, then how do they affect our behavior? Do we become more or less trusting as we get older? Do the conditions under which we trust become more refined with age? To answer these questions this chapter investigates trusting behavior among children. We focus on trusting behaviors in children in the belief that this will provide insight into when and how certain aspects of trust behavior are formed. We report the results of an economic experiment that allows us to look at changes in these behaviors with the age of both the “truster” and the “trustee,” and we also consider the effects of children’s individual characteristics on trusting behavior. Because elements of trust are cognitively complex, involving reading and interpreting subtle nuances in the behavior of others as well as the ability to infer others’ intentions and motivations, we might expect to find differences among young children, teenagers, and adults in their responses to trust dilemmas. This research is part of a new effort to use economic methods and models to explore the behavior of children. In earlier work (Harbaugh , Krause, and Berry 2001) we show that by about age eleven, children’s consumption choices are generally consistent with rational behavior. Elsewhere (Harbaugh, Krause, and Vesterlund 2001), we find that even seven-year-old children tend to value goods they own more than those they do not. We take this as evidence that children exhibit an endowment effect similar to that found in adults. In more complex economic interactions, we have found that bargaining ability among children is well developed at a surprisingly young age. By the age of seven, children appear to correctly consider the probability of rejection in bargaining games (Harbaugh, Krause, and Liday 2001). In situations involving choice under risk, we have found that children’s choices are only slightly less consistent across choices than...

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