We conduct a controlled laboratory experiment to investigate trust and trustworthiness in a networked investment game in which two senders interact with a receiver. We investigate to what extent senders and receivers comply with an exogenous and non-binding recommendation. We also manipulate the level of information available to senders regarding receiver's behavior in the network. We compare a baseline treatment in which senders are only informed about the actions and outcomes of their own investment games to two information treatments. In the reputation treatment, senders receive ex ante information regarding the average amount returned by the receiver in the previous period. In the transparency treatment, each sender receives ex post additional information regarding the returning decision of the receiver to the other sender in the network. Across all treatments and for both senders and receivers, the non-binding rule has a significant and positive impact on individual decisions. Providing senders with additional information regarding receiver's behavior affects trust at the individual level, but leads to mixed results at the aggregate level. Our findings suggest that reputation building, as well as allowing for social comparison could be efficient ways for receivers to improve trust within networks.
