By Thomas A. Rietz , Roman M. Sheremeta , Timothy W. Shields, and Vernon L. Smith

1. Comments on “Transparency, Efficiency and Distribution of Economic Welfare in Pass-Through Investment Trust Games” By Thomas A. Rietz, Roman M. Sheremeta, Timothy W. Shields, and Vernon L. Smith Shyam Sunder, Yale University Experimental Economics, Accounting and Society: A Conference in Memory of John Dickhaut Economic Science Institute, Chapman University, January 13-14, 2012

2. An Overview • Direct descendant from John’s work on trust and reciprocity in a two-person, single-stage game • The present work examines the consequences of varying transparency in a three person, two-stage trust game under four distinct transparency conditions: • No transparency • When investors could see the exchanges between intermediaries and borrows • When borrowers could see the exchanges between investors and intermediaries, and • When both the investors and the borrowers could see all exchanges. • These treatments affected only the information available to investors and borrowers; the intermediaries always knew the actions of all players

3. Findings • No effect in single-shot game • In repeated play: • Transparency of investor actions: no effect • Transparency of borrower actions => trusting investor => greater welfare of intermediary and borrower (but not of investors) • Implications for financial market transparency: in practice, borrower actions are indeed made more visible to the investor than vice versa

4. Question 1 • The design adds one link to the Berg et al. (1995) trust game because “in reality, many situations require multiple levels of trust” • But the inferences from the data a limited to the two links. • Would be useful to guide the reader towards assessing what they should expect in such situations with multiple levels of trust or betrayal

5. Transparency • In public discourse and discussions of public policy, transparency is often cited as if it necessarily improves welfare • But privacy is also a valued right in society • Since most of us would rather not work or live in a glass house, we need a better understanding of characteristics of situations in which transparency does or does not improve welfare. • In bargaining situations, transparency can lead to deadlock, and prevent profitable deals • It would have been useful in this design to develop an ex ante theory of what to expect when investor or borrower or both actions are made transparent, to take us towards developing a general principle about the effect of transparency on welfare

6. Magnitude of Gains • The investment is tripled to intermediary and tripled again to the borrower for an 800% total return on investment • Since the experiment is motivated by financial market situations where such large returns are unusual but not unknown, I wonder what, if any, effect lowering the returns to more conventional levels would have on these results.

7. Questions • Why does the investor not benefit from getting more access to information about the borrower behavior? • Why do some of the benefits of transparency accrue to the intermediary? • Are these results consequences on absence of alternative opportunities for the players (markets for investment and borrowing)?

8. Actions vs. Strategies • The experiment focuses on transparency of actions (this is all we can have access to) • There is easy way of knowing the strategies, and even less of making them transparent • To what extent and under what circumstances can player strategies be accurately inferred from player actions by the others? • Could such analysis help build explanation of these results

9. THANK YOU

11. John Wilson Dickhaut(1942-2011) Man who would not be modeled

12. John Wilson Dickhaut(1942-2011) Man who would not be modeled