THE INVESTMENT GAME WITH ASYMMETRIC INFORMATION

Abstract

We analyze the effects of introducing asymmetric information and expectations in the investment game (Berg et al., Games and Economic Behavior, 1995, 10, 122–42). In our experiment, only the trustee knows the size of the surplus. Subjects’ expectations about each other's behavior are also elicited. Our results show that average payback levels increase with the average amount sent. Asymmetric information does not reduce the amounts sent and returned, as compared with previous experimental studies. The first movers’ choices increase with their expectations about the second movers’ payback, whose choices depend in turn on the difference between expected and actual amounts received.

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