American Economic Review: Vol. 95 No. 5 (December 2005)
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Using Experimental Economics to Measure Social Capital and Predict Financial Decisions
Karlan, Dean S. 2005. "Using Experimental Economics to Measure Social Capital and Predict Financial Decisions." American Economic Review, 95(5): 1688-1699.
Questions remain as to whether results from experimental economics are generalizable to real decisions in nonlaboratory settings. Furthermore, questions persist about whether social capital helps mitigate information asymmetries in credit markets. I examine whether behavior in two laboratory games, Trust and a Public Goods, predicts loan repayments to a Peruvian group-lending microfinance program. Since this program relies on social capital to enforce repayment, this tests the external validity of the games. Individuals identified as "trustworthy" by the Trust Game are indeed less likely to default on their loans. No similar support is found for the game's identification of "trusting" individuals.
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Karlan, Dean S.