Richard Zeckhauser and Program on Negotiation faculty member Iris Bohnet have found that negotiators leave substantial amounts of money on the table due to betrayal aversion. They conducted experiments in which they compared people’s willingness to take risks in two decision situations. The first situation is a lottery whose outcome is based on chance. Participants must choose between:

• a sure win of $10 each for themselves and another person, or
• a gamble in which they can either earn $15 for themselves and $15 for another person or only $8 for themselves and $22 for another person.

The second situation is an identical odds-and-payoffs problem in which the outcome depends not on chance but on whether another person proves trustworthy or not.

In both situations, we asked the participants how great their odds of earning $15 would have to be for them to be willing to gamble – either on random odds or on someone else’s trustworthiness.

Interestingly, people requested more certainty in the trust situation than in the lottery.

They were willing to take the gamble if the likelihood of winning $15 based on chance was 0.32 but were only willing to trust if the likelihood of winning $15 based on someone’s trustworthiness was 0.54. Had participants approached the problem rationally – comparing the expected material benefits and costs of trust to the no-trust alternative – there should have been no difference between the likelihood of the two requested outcomes. This implies that decisions based on trust entail an additional risk premium to balance the costs of trust betrayal.

Related Article: To Trust or Not to Trust ^[1]