Tale of Two Countries: Trust and Trustworthiness in China and the U.S.

Publication Date:
Jan 2011
Project Programs:
Behavioral Economics

We experimentally investigate the country-level variations in trust and trustworthiness between China and the U.S. in the context of forecast information sharing. We consider a two-tier supply chain in which the upstream supplier solicits demand forecast information from the retailer to plan production, yet the retailer has an incentive to manipulate her forecast to ensure abundant supply. Both the levels of trust and trustworthiness in the supply chain and the supplier's capability to solve for the optimal production quantity affect the efficacy of forecast sharing and the resulting profits. We disentangle these two aspects with a novel experimental design. Our experimental results first demonstrate the robustness of the pull-to-center bias in both countries when people solve a complex decision problem under uncertainty (i.e., the newsvendor problem). We next determine that Chinese consistently exhibit lower trust and trustworthiness than their U.S. counterparts. In addition, when risk or vulnerability due to potential loss from trusting increases, the relative decline in trust (measured by the percentage decrease of trust) is more evident in the U.S., whereas the absolute decline is more pronounced in China. This paper takes the first attempt to manifest the impacts of cultural and institutional heterogeneity between China and the U.S. on strategic supply chain interactions. Our conclusions underscore the importance for firms to devote more time and effort to maintaining a trusting relationship with their Chinese partners than they do with U.S. ones. Chinese companies and government should in turn proactively cultivate a cooperative mindset among the young generation and establish an environment conducive for efficient inter-organization transactions. We also highlight the critical environment (e.g., one with a high overage risk) in which sustaining this trusting and cooperating relationship is most imperative.


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