December, 2018

Market Institutions and the Evolution of Culture

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We find experimental evidence suggesting that market institutions are capable of developing their own cultures by influencing generalized and individualized trust. We employ two different markets in this study: the first market fully and automatically enforces all agreed-upon contracts; and the second market offers no such enforcement and allows subjects to defect on previously agreed-upon contracts. We find that a type of culture where people treat one another more or less equally and indiscriminately emerges with the first market, while a culture where people differentiate between the trustworthy and the untrustworthy emerges with the second market. While generalized trust remains the same across both treatments, individualized trust was only important in the treatment where contracts were not enforced in the experimental market. In the treatment where the market offered no enforcement, subjects exhibited less trust towards those with whom they had developed negative relationships and reciprocated at higher levels to those with whom that had developed positive relationships.