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Abstract
Standard economic models predict that reputational mechanisms should discipline misconduct in markets. However, empirical reality often shows the opposite: in cases of sexual harassment, the costs are borne not by perpetrators but by victims, who disengage from opportunities, thereby reproducing structural inequality. Employing a hybrid Test and Explore experiment with Japanese entrepreneurs—a group uniquely reliant on relational trust due to weak institutional protections—this study investigates the underlying logic of their investor choices when faced with this threat. The findings reveal a core tension. On one hand, a confirmatory (test) analysis shows entrepreneurs assign an immense, yet calculable, cost to harassment, with a Willingness-to-Pay (WTP) of ¥16.35 million to avoid a problematic investor—a sum exceeding highly valued assets like network access. On the other hand, an exploratory analysis finds that this calculative logic seems to collapse under a specific condition: when no trustworthy alternative is available. In this context, 76.5% of entrepreneurs opt for categorical rejection, a choice insensitive to financial incentives. This paper argues that this tension is resolved by a model of dual rationality. A dignity-based logic is activated when trustworthy alternatives are absent, acting as a non-negotiable precondition for market engagement. It complements the calculative logic that governs choices once this precondition for dignitary safety is met. This study offers a plausible micro-level mechanism through which individually rational choices, drawing on different logics depending on the context, may in aggregate contribute to broader patterns of market disengagement and social inequality.