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Using Experimental Economics to Measure Social Capital and Predict Financial Decisions

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  • Karlan, Dean S.

Abstract

Questions remain as to whether results from experimental economics games are generalizable to real decisions in non-laboratory settings. Furthermore, important questions persist about whether social capital can help solve seemingly missing credit markets. I conduct two experiments, a Trust game and a Public Goods game, and a survey to measure social capital. I then examine whether behavior in the games predicts repayment of loans to a Peruvian group lending microfinance program. Since the structure of these loans relies heavily on social capital to enforce repayment, this is a relevant and important test of the games, as well as of other measures of social capital. I find that individuals identified as "trustworthy" by the Trust game are in fact less likely to default on their loans. I do not find similar support for the Trust game as a measure of trust.

Suggested Citation

  • Karlan, Dean S., 2005. "Using Experimental Economics to Measure Social Capital and Predict Financial Decisions," Center Discussion Papers 28429, Yale University, Economic Growth Center.
    • Handle: RePEc:ags:yaleeg:28429
    DOI: 10.22004/ag.econ.28429
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    Keywords

    Institutional and Behavioral Economics;

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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