UC Riverside

Abstract We show experimentally that a very brief face-to-face conversation, or small talk, with a potential trading partner can serve a contracting function by enhancing trust and strengthening cooperative norms. Specifically, participants engaged in 3-min video calls with no agenda before playing Hold Up and Stag Hunt games. Despite having no prior knowledge of the games, the calls positively impacted trust, cooperation, and efficiency: there was more investment and less stealing in the Hold Up games, and participants more frequently reached the efficient equilibrium in a second, surprise Stag Hunt game when they talked after the first game. Our findings suggest that some players who had the opportunity to hold up others changed their preferences, and some who risked being held up changed their beliefs. Beyond alleviating contractual incompleteness, these results help explain why small talk pervades human interaction—from high-stakes business deals to casual professional encounters and beyond (JEL D02, D86, D91).