Abstract

We experimentally test Hume’s hypothesis that people underappreciate the value of cooperation-enforcing institutions in impersonal interactions by relying on personal trust. Subjects played a game in groups of two or six. Each subject could defect at any time, leaving the others with zero payoff by unilaterally appropriating an amount of money that grew over a period of 5 ​minutes. All players received the maximum payoff only if nobody defected. Before the game, subjects could purchase a cooperation-enforcing institution. Their willingness to pay for this institution fell short of the loss caused by failed cooperation under institution-free play. This was even true for the best-off subject in an institution-free society. In the absence of learning, people indeed fell prey to the atavistic fallacy of trusting in people instead of institutions. Understanding this bias might help people in complex societies to acknowledge the value of institutions intellectually.