Sorry, No CODs: An Experimental Investigation of Sequential Trade

The trust game is used as a model of sequential trade. In this game it is the seller who must trust the buyer, but many naturally occurring transactions are structured such that buyers must trust sellers to complete trades upon receipt of payment. This subtle difference is significant as the experimental evidence presented in this paper indicates that sellers are more likely to complete the transaction. Surprisingly, buyers are substantially less trusting, but additional experiments indicate this lack of trust is due to buyer concern that sellers will accept a payoff that is smaller than the buyer’s payoff when the price divides the gains from trade equally.