How Monitoring Influences Trust: A Tale of Two Faces

Abstract

Monitoring changes the behavior of those who are monitored and those who monitor others. We studied behavior under different monitoring regimes in repeated trust games. We found that trustees behaved opportunistically when they anticipated monitoring – they were compliant when they knew in advance that they would be monitored, but exploited trustors when they knew in advance that they would not be monitored. Interestingly, trustors failed to anticipate how strategically their counterparts would behave. Trustors misattributed the strategic, compliant behavior they observed as signals of trustees’ trustworthiness. As a result, trustors misplaced their trust when they were unable to monitor their counterparts. We discuss the managerial implications of our results for designing and implementing monitoring systems.

Publication
In Management Science
Date