Whom to Trust: Why We Persistently Get It Wrong

By Jeffrey Butler, Assistant Professor, Louisiana State University; Paola Giuliano, Associate Professor of Economics at the UCLA-Anderson School of Management; and Luigi Guiso Axa Professor of Household Finance, Einaudi Institute for Economics and Finance. Originally published at VoxEU

Assessing the trustworthiness of others is a ubiquitous and fundamental process. If these trustworthiness assessments translate into trusting behaviour, understanding how ‘trust beliefs’ are formed is consequential. The current US presidential election may hinge on voter assessments of the trustworthiness of candidates. The victims of the US investment fraudster Bernie Madoff are reminders of the potentially severe financial consequences of misallocated trust.

Kenneth Arrow (1972) famously asserted that trust is a prerequisite for most economic activity. A large and lively body of research in economics focuses on trust and its aggregate economic consequences, documenting strong relationships between general levels of trust between nations and everything from GDP growth to cross-country trade patterns (Knack and Zak 2001, Knack and Keefer 1996, Guiso et al. 2004, Tabellini 2008, Algan and Cahuc 2010, Guiso et al. 2009).

Despite the economic importance of trust, surprisingly little is known about what causes us to trust others. Although previous research suggests that both pecuniary and non-pecuniary factors (‘betrayal’ or ‘control’) play a role, it is not clear which non-pecuniary factors are particularly important or persistent, or precisely how these factors affect trust (Bohnet and Zeckhauser 2004, Cox 2004, Ashraf et al. 2006, Bohnet et al. 2008, Butler and Miller 2015, Bolton et al. 2016).

Furthermore, while common sense dictates one determinant of trust must be trust beliefs, even less is known about what shapes these beliefs or their relationship, if any, with trusting behaviour.

Moral Determinants of Trust and Trust Beliefs

Our research is beginning to fill this gap. We use experimental evidence from the so-called ‘trust game’ to shed light on the determinants of trust and trust beliefs. In this game, one person (the ‘sender’) sends money to another person (the ‘receiver’). The amount is increased when the receiver gets it. In turn, the receiver can return all, some or none to the sender. Because receivers are unconstrained in their decisions, senders’ choices can plausibly be interpreted as trusting behaviour.

Our results shed light on how, and to what extent, moral concerns drive trust. Building on previous research that found scope for non-pecuniary concerns, in Butler et al. (2016a) we elicit participants’ subjective, individual notions of what constitutes ‘cheating’ in the context of a trust game experiment, and relate this to their behaviour in the same game.

We find a large direct impact of moral concerns. While expected monetary returns play a large role in senders’ decisions to trust, we estimate that the likelihood of ending up feeling cheated also significantly influences trusting behaviour. Surprisingly, the influence of moral concerns on how much individuals trust is comparable in magnitude to risk aversion, a more widely acknowledged determinant of this trust/investment decision.

Notions of Cheating

Having documented that moral considerations are an important direct determinant of trust, we also found indirect channels through which moral concerns may affect trusting behaviour. One such channel operates through senders’ trust beliefs. We found that receivers try to not leave their (anonymous) co-players feeling cheated. Since there is no consensus on what cheating entails – we find wide variation in definitions of cheating, the patterns of which are interesting in their own right – this requires receivers to guess what senders would consider to be ‘cheating’.

How do they guess? Our evidence suggests that receivers’ belief in what the senders would consider as cheating is strongly correlated with how receivers themselves define cheating. This is a pattern consistent with the psychological phenomenon of ‘false consensus’ (Ross et al. 1977) in which we tend to think that others are like us.

Astoundingly, we find that senders apparently anticipate this thought process. We uncover a strong positive relationship between senders’ own cheating definitions and how much money senders believe receivers will return to them.

Since moral considerations, as manifested by subjective cheating definitions, play a strong direct and indirect role in trusting behaviour, the obvious question arises: where do these definitions come from? Our study suggests that cheating notions are affected by values instilled by parents. We surveyed participants about the values their parents taught them during their upbringing, and classified the list into two categories:

  • Pro-social values, such as altruism and cooperation
  • Pro-competitive values, such as striving to be better than others

We find that pro-competitive values are strongly associated with higher cheating definitions – that is, needing higher monetary returns in order to not feel cheated – while pro-social values substantially relax, or lower, cheating definitions.

Real-World Implications of Experimental Findings

Are there any real-world implications for these experimental findings about trust? If trust beliefs drive trust behaviour, trust behaviour is important for economic success. Moreover, if some individuals hold persistently mistaken trust beliefs, then these mistaken beliefs may create substantial economic losses.

The relationship between parentally instilled values and, ultimately, trust beliefs may be one source of persistently mistaken beliefs. A reduced-form channel may be false consensus. For instance, trustworthy individuals may believe that others are more trustworthy than they actually are – and, to the extent that false consensus operates on a subconscious level, its distorting effect on beliefs may not be eradicated by evidence.

Consistent with either of these channels, in related research we document substantial economic losses at the individual level associated with mistaken trust beliefs in large-scale survey data (Butler et al. 2016b). The income losses we can attribute to mistaken trust beliefs are in the same order of magnitude as those associated with not going to college. We replicate this relationship between mistaken trust beliefs and earnings losses in an experimental trust game, where we also find a substantial role for parentally instilled values, and false consensus in shaping trust beliefs (Butler et al. 2015).

Economists have singled out trust as an important phenomenon at the individual level, and for society as a whole. This raises natural questions about the determinants of trust. We knew already that decisions about whom and how much to trust are partly based on pecuniary considerations, but that there is a substantial and varied role for moral considerations. The interplay between trust, trust beliefs, instilled values, and automatic psychological process such as false consensus may be a particularly fruitful area for more research.

See original post for references

Credit: Naked Capitalism

42 Comments

  1. I Have Strange Dreams

    A Kenneth Arrow quote; not looking good.
    “Economists have singled out trust as an important phenomenon at the individual level, and for society as a whole.”
    Like, no shit. It takes a PhD in economics to figure out what every non-autistic person already knows? Once again, economics debunks itself by having to rely on the social science of psychology. Economics is a filthy louse-ridden, plague-infested ghetto. Burn it to the ground.

  2. There are many good economists out there; they just aren’t trusted because they don’t follow the popular schools of thought.

  3. they just aren’t trusted because they don’t follow the popular schools of thought concoct fairytales to justify policies that make their paymasters richer.
    FTFY

  4. Define ‘many’. Economics is a field that spends most of its time indoctrinating students with a set of ideas every neuron in their head should be screaming don’t remotely reflect reality. Economics is learning to think like an economist, and then occasionally lamenting how pesky real people don’t behave like economic models say they should. Part of this is accomplished by hiding from the students that there even are other schools of thought: “Economics is a science, like Physics. There Is No Alternative; there’s no such thing as ‘alternative physics’, there shouldn’t be with economics either.”
    There are perhaps a handful of truly good economists who reject basically all of the ‘fundamentals’ found in the textbooks, and then a larger set of people who are clearer sighted on specific issues but still accept too many of the BS textbook foundations, and then the vast majority of the profession, which is pure hackery.

  5. Arizona Slim

    I agree. And, true confession, I majored in economics.

  6. UserFriendly

    This entire country is a filthy louse-ridden, plague-infested ghetto that I am ready to burn to the ground.

  7. We seem to have to go through a cataclysmic period of non trusting, evil, collective madness about every 80 to 100 years, which is about the length of living human memory plus a few decades for the previous lessons to be totally forgotten as irrelevant stories in history books. Actual pain of war and betrayal is no longer a deterrent to the factors of insanity that lead us into dark periods of human history. So, history is punctuated every 8-10 decades with suffering on a scale that you cannot even imagine, and betrayal, the intentional breaking of trust for the personal gain of a few, is a large part of that.
    That along with the scorched earth mentality of those who’s trusts were betrayed which allows individuals the liberty to say out loud that they no longer care what happens because they have been so royally screwed and can no longer trust others.
    What they always forget is that where their is a lack of trust there will also always be some amoral individuals there to exploit that lack of trust. This is how things like the Hundred Years War was fueled, the Civil War in the USA was ignited, how Hitler and Stalin and Mao became the evil tyrants in power that collectively killed a couple hundred million people. It is the power behind Donald Trump.
    Where this becomes a matter of critical urgency is that never before in human history did a leader have the ability to ACTUALLY scorch the planet. Is there anyone reading my thesis that HONESTLY believes Hitler would not have used nuclear weapons even if it was with his last act of revenge on a nation he thought betrayed him? Please do not give me denial, that is part of what this article is about. When what drives trust in others is subconscious then confrontation of the fact of others duplicity always triggers denial, no matter how plain the fact of that duplicity.
    My solution is to get as far from high concentrations of others as I can reasonably get. Central Chile maybe. Rural New Zealand? Because I no longer trust my brothers in what has been the best hope of man for 240 years to do what is sane and rational, half of the country seems to be in the angry betrayed crowd, and the other half seem to be in the denial mentality.
    It is only a matter of time, and it answers the question once and for all; can humanity survive it’s worst instincts. That answer unfortunately seems to be NO!

  8. …maybe that’s why many in the American electorate get seduced by “hope”.

  9. : Surprisingly, the influence of moral concerns on how much individuals trust is comparable in magnitude to risk aversion, a more widely acknowledged determinant of this trust/investment decision.
    : We find that pro-competitive values are strongly associated with higher cheating definitions – that is, needing higher monetary returns in order to not feel cheated – while pro-social values substantially relax, or lower, cheating definitions.
    This touches on hyperbolic discounting and the expectation of an iterated interaction. There seems to be an assumption of no charity, in other words the sender only has one criteria, of ROI, which is expected to be greater than if no money was sent.
    So the first interaction sets the priors, how much return can be expected. But by this criteria the underlying gamble is only whether there is a subsequent return. If the return is less than or equal to what is sent, nothing is likely to be sent, averting loss. Otherwise, the percentage of the senders capacity that is sent keys off the uncertainty that there will be a return, i.e. the receiver keeps everything but doesn’t necessarily expect iteration.
    But there is no indication that the sender knows the multiplier that the receiver is allotted. In the Frans de Waal experiment the cheated monkey sees that the gains are distributed unequally and gets angry. There is a comparison to a reference baseline.
    Without having that knowledge, it seems more like what’s been outlined in the CalPERS series, where the sender has no idea how much is being skimmed off the top. So they should be happy with whatever return they get, and continue to invest regardless of risk.
    It seems the implicit assumption of those with pro-competitive values is that they would take more, so even a pro-social maximum return would be regarded by the sender as cheating if the real multiplier was low. Conversely, a pro-social sender would be happy with whatever return they got, even if the multiplier were high. That’s being a sucker and would eventually be selectively oppressed despite being happy.
    The conclusion I get is that the world-views are confirmed regardless of reality, unless the inside information of the value of the multiplier is available for assessment.

  10. Or that world views are so pervasive that they in fact become reality, make it true in spite of what an impartial observer would conclude. But, that is capitalism. It is also how good average Germans signed up for the SS, their world became the reality that just 10 years before they would have considered absurd, unthinkable. This involves denial on a scale that they never would have believed themselves capable of.
    Because the forces that drive these trust issues are mostly subconscious they can be thought of as “free floating.” Betrayal becomes anger and anxiety, since the betrayed and anxious know themselves to be fundamentally decent people that angst is assigned to either victimhood or allows them to become victimizers. And in many cases becoming brutal and polarized is a result of attaching that betrayal to scapegoats, such as average Germans were convinced to do in the 1930’s. This is why denial of the holocaust still exists.
    I see it expressed every day in America now, mostly in many small ways, but in the last year the haters and betrayed are displaying their anger in ever more brazen ways. For example, I had an eye appointment at the VA last week. On the coffee table in the waiting room were the standard old magazines you see in all waiting rooms, one had a photo of Hillary Clinton on the cover. Some veteran had decided to deface the photo with horns and goatee, pitchfork, etc. standard stuff for a seven year old. Can you imagine what processes were happening in that veteran’s head that allowed that behavior? And can you imagine what that guy is going to do if she is elected? Can you see how very little it would take for this person to rationalize the acceptability of putting people into ovens? A man who supposedly fought for this country on the side of freedom and fairness, of the sanctity of the rule of law? Who can justify a vote for such an amoral personality as Trump? Who has bought into stereotypes of Latinos and gays and women and the handicapped?
    This is what trust is at the very bottom of the individual “soul.”
    You give and you get. You are taught that you live and you allow others to live. When that is betrayed you lose that faith and then you become what you never thought you could be. It becomes a matter of survival in your head. It makes you exploitable. People do not understand it because this article is all about trying to rationalize and quantify the triggers of that which is actually irrational. Trust is not a rational thing that can be defined no less mapped by psychologists and economists or any other science.
    Like porn was once described in the supreme court, I might not be able to define it but I know it when I see it.

  11. Trust is not an absolute value.
    Not right/wrong or yes/no.
    Trust in any person, institution, philosophy, political idea, religion, etc. should always be based on ongoing and continually updated valuation and validation of the concepts we are considering. The greatest crimes against humanity throughout history have always been committed by followers of those in whom we have placed blind trust.

  12. “The greatest crimes in the world are not committed by people breaking the rules but by people following the rules.” — Banksy

  13. Absolutely right Mike – and Banksy – but it’s worse. We now know that the people “following the rules” are the very same who “make the rules”.
    A guaranteed win-win situation for them.

  14. Mike you and Banksy are right. Unfortunately we now live in a world where the people following tha rules are also the ones who make the rules.

  15. Disturbed Voter

    1. Deceit, gullibility, incompetence … where are these variables in the analysis?
    2. Asymmetry of information … this is crucial, even in a trusting relationship
    3. Assumption of “rational actors” … sheesh

  16. Especially the asymmetry of information.
    I’d also add “seeing what we want to see”. A TED talk by Pamela Meyer about various forms of deception tucked in a comment it was easy to overlook. It was the words of the most famous con man, Henry Oberlander. He said that if you could find out what a person “is hungry for”, you could con them. He said “everyone would give you something” if they thought it would get them something they want.
    I reflected on what I care about to the extent I allowed myself to be duped. Meyer said understanding this is how we can stop cooperating in lies. (Her first point is that lying is a cooperative act.)

  17. Distinguishing between trust, resignation, and desperation might be more informative for our purposes.
    I trust him not to screw me over.
    I know I’m going to get screwed over but I need x to maintain valued condition y.
    I am screwed the minute the ambulance comes but my fear of death exceeds my fear of poverty.
    I think Arrow and Akerlof are important thinkers whose ideas are surprisingly allowed occasional mention in the mainstream. Arrow’s identification of health insurance and the medical institution as more resembling a protection racket than a system for preserving health was incredible and prescient, a mistake that would take nearly 50 years to force into existence.

  18. . . . Kenneth Arrow (1972) famously asserted that trust is a prerequisite for most economic activity. A large and lively body of research in economics focuses on trust and its aggregate economic consequences . . .
    Despite the economic importance of trust, surprisingly little is known about what causes us to trust others.
    From one paragraph to the next. All this money wasted on research by economists, and they admit to still being clueless. I trust that conclusion.
    The ‘trust game’ is nonsense. It’s like using a heap of garbage for a foundation. Where did the sender get the money from? Were they given the money by the ‘economists’ running the game, or was it their own money earned working a low paying jawb, or was it ‘earned’ by ripping customers off like Wells Fargo employees or Wall Street money managers do?
    Here is the point of the article.
    . . . The interplay between trust, trust beliefs, instilled values, and automatic psychological process such as false consensus may be a particularly fruitful area for more research.
    I trust they would never call it the “Economist’s Full Employment Program at a six figure salary”.
    Economics will never be a science, but lots of money is wasted paying economists to try to prove otherwise.

  19. Wait a minute, wait a minute! We are trusting ECONOMISTS here to describe a psychological phenomenon related to human nature! Philip Mirowski debunked this a year ago in his talk “Should economists be experts in markets or experts in human nature”-https://www.youtube.com/watch?v=xfbVPDNl7V4 He clearly says that they have never been serious about human nature if it means sitting down with psychologists and figuring humans out. Honestly I was hoping this article would not be written by economists.

  20. Sound of the Suburbs

    Don’t trust today’s mainstream economics.
    Let’s form a global economy guided by ideas of economic liberalism where we put the economy first over the interests of people.
    Pre-2008 – boom
    2008 – bust
    Post-2008 – stagnation
    Unfortunately, no one really understood how the economy worked.
    2008 – “How did that happen?”
    What more evidence do we need?
    What is wrong with economics when science can successfully send space craft to the outer edges of the solar system?
    Science has been allowed to develop successfully as it cannot be modified to suit certain vested interests to make them richer.
    Economics is not like this.
    There is something wrong with economics that was first spotted at the end of the 19th century and pretending it is a real science today is little more than wishful thinking.
    Thorstein Veblen wrote an essay in 1898 “Why is economics not an evolutionary science?”.
    Real sciences are evolutionary and old theory is replaced as new theory comes along and proves the old ideas wrong.
    Economics jumps about like a cat on a hot tin roof and is not evolutionary, in the late 1970s Keynesian ideas were ditched for the ideas of Milton Freidman. We threw out the old Keynesian economics and bought in something new and untested just as we are about to embark on globalisation, it was asking for trouble.
    Milton Freidman hadn’t realised real science is evolutionary.
    Looking back we can see other problems.
    Malthus came up with an economics that worked for the vested interests of the land owning class.
    Ricardo came up with an economics that worked for the vested interests of the financial class.
    Marx came up with an economics that worked for the ideology he was trying to put forward.
    It’s complex, quite fuzzy and can be easily biased to suit vested interests.
    Early on it became very apparent to the wealthy and powerful that economics needed to be biased in the right direction for their interests.
    As Classical Economics reached its zenith in the 19th Century it had come to some unfortunate conclusions powerful, vested interests didn’t like so they backed a new, neoclassical economics that missed out the undesirable conclusions from Classical Economics like the differentiation of “earned” and “unearned” income.
    Most of the UK now dreams of giving up work and living off the “unearned” income from a BTL portfolio, extracting the “earned” income of generation rent.
    The UK dream is to be like the idle rich, rentier, living off “unearned” income and doing nothing productive.
    This distinction between “earned” and “unearned” income has been buried ever since.
    Neoclassical economics led to the Wall Street Crash of 1929 and the Great Depression, where its ideas just made things worse.
    Keynes came up with some new ideas that were incorporated into the “New Deal” and the recovery began in the US.
    Keynes ideas had some unpleasant conclusions as well and so economists moulded some of Keynes ideas into neoclassical economics ready to use after the Second World War. Keynes had said that capitalism was inherently unstable and recognised the dangers from financial asset investing, not the sort of ideas that were desirable.
    The Golden Age of the 1950s and 1960s followed.
    The new hybrid Keynesian ideas went wrong in the 1970s and its ideas did not lead to recovery.
    The powerful vested interests sought an opportunity to bring back their really biased pure neoclassical economics and use it as the basis for a global economy.
    It was improved, but still had all the old problems:
    1920s/2000s – high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons (CEOs), reckless bankers, globalisation phase
    1929/2008 – Wall Street crash
    1930s/2010s – Global recession, currency wars, rising nationalism and extremism
    Left to their own devices, powerful vested interests will develop an economics that is so biased the economic system will collapse due to the polarisation of wealth at the personal and national level (like now).
    Lots of other inconvenient stuff is missing too, which has lead to many of the recent mistakes, including 2008 and its aftermath:
    1) The true nature of money and how it is created and destroyed on bank balance sheets.
    2) The work of Irving Fischer, Hyman Minsky and Steve Keen on debt inflated asset bubbles. Their inflation, bursting and the debt deflation that follows.
    3) Richard Koo on balance sheet recessions.
    You can bias economics to suit vested interests but you can’t make that biased economics work.
    Economics needs to be rebuilt form the bottom up in an evolutionary, scientific, manner not missing out the bits that are inconvenient for wealthy and powerful vested interests.

  21. Economics can never be a science. My two cents.
    And, Dutch took the words right out of my mind.

  22. Economics can never be a science.
    I think it might, but we won’t know for sure until someone runs the experiment.

  23. Double-blind experiment, of course.

  24. John Wright

    Financially successful members of the economics profession will always tend to tell the rich and powerful what they want to hear/promote.
    I believe economics is going to suffer a large, perhaps fatal, hit to its reputation when climate change kicks in.
    The economics profession will be seen as one profession, in particular, that encouraged digging up the world’s hydrocarbons and burning them as sacrifices before the altar of unlimited economic growth.
    BTW, Isn’t trust, and its issues, somewhat summed up by the Russian proverb quoted by Ronald Reagan “Trust, but verify”.

  25. I see you are a fellow follower of Michael Hudson.

  26. Sound of the Suburbs

    “Killing the Host” explained so much.
    His explanations are clear and easy to understand and fit so well with what I am seeing.
    I just can’t imagine he could be wrong.
    I will be buying his next book as soon as it comes out – J is for Junk Economics.
    Hopefully, it will contain some further insights.

  27. Economics crashes and burns at first contact with actual human beings. The economy is nothing more nor less than the actions of people, and there is not and never will be an equation for human behavior.

  28. Chauncey Gardiner

    Funny, I have also been thinking about this subject recently, and particularly about how the values of the class of one’s family of origin and cultural differences play into an individual’s and even an organization’s values and behavior. What might be considered dishonest, corrupt, unacceptable, or even sociopathic behavior by one socioeconomic class or in one area of the country is considered expected behavior and “fair play” by and in another; and further, that those in the former group are considered “naive” or “rubes” who are legitimate targets for exploitation and deserve their losses in our neoliberal, crony-capitalist, caveat emptor, Citizens United, winners-take-all system.
    Insightful related commentary on PBS Newshour yesterday evening that many of those who live and work in DC and Manhattan (what is commonly called the “Acela Corridor”) simply “don’t get” why HRC is reviled by large numbers of Americans elsewhere in the country. It was interesting to me that these observations were by one of her acknowledged supporters.

  29. FluffytheObeseCat

    Yes. When former New York Times editor Jill Abramson said, “Hillary Clinton is fundamentally honest”, she wasn’t lying. She was viewing Hillary in the context of the class they both inhabit by virtue of rank, pedigree and age. When Clinton is viewed by one of the of the Acela riding elite, and then compared to their own milieu ‘fundamentally honest’ is an accurate description.
    That is the problem.

  30. John Morrison

    Here’s a related idea: all too often in a novel, I read someone saying something like, “He’s lying, and he knows that he’s lying.” This is always most annoying, because it seems to me that the speaker means to say, “He’s telling a falsehood, and he knows it’s false.” Normally, if one tells a falsehood, but doesn’t know it’s false, he’s not lying. He’s a carrier of the falsehood, believing it, and passing it along.
    But then it occurs to me that there is something to the notion of “lying, but not knowing that he’s lying”. Jill Abramson may fall into this class of liar who doesn’t know she’s lying, although I wouldn’t know.
    I can think of a few examples of lying, but not knowing that he’s lying. They all involve fundamental incompetence. Here’s one example: the police dropsy lie. A police officer stops someone on the street, searches him, and finds something incriminating (or pretends to find something incriminating — planting something). The police officer then testifies on the witness stand that the person ran away when approached by the officer, and tossed out the incriminating object.
    The officer lied, but probably doesn’t think of it as a lie, even though it was. He may instead think of it as fighting crime, capturing a criminal, getting a criminal off the street.
    Did the officer perjure himself? Absolutely. Should he be punished for perjury? Absolutely. Why punish, if he doesn’t think of it as a lie? In this case, the benefit is for the next police officer in a similar position. If it’s not educational, teaching the officer that the dropsy testimony really was a lie, at least it potentially deters him.
    The punishment also (potentially) educates the punished officer himself. Fat chance of that, unfortunately. If he’s not simply confused about why he was punished, despite the trial he went through showing his false testimony, he’ll attribute his punishment as being sacrificed on the alter of Political Correctness.

  31. susan the other

    “Trust is the coin of the realm” seems to be such a salient adage but this research proves it is impossible to plumb… trust is always in flux.

  32. Trust is only an arm’s-length away ……
    …and no further !

  33. This is supposed to be news? The idea that trust is a major facilitator of prosperity – if not a precondition – was popularized by Fukayama twenty years ago (yes, him). And Edward Hall’s book on high and low context cultures is twenty years older than that. But then Hall was an anthropologist. You shouldn’t let economists near subjects like this.

  34. Reminds me of an old joke, which I will now proceed to garble:
    A scientist, a lawyer, and an economist find themselves stuck in the bottom of a 20-foot deep shaft with smooth walls. The first two confess to not having a clue about how to escape their predicament, on their own. The economist, on the other hand, has everything totally under control: “First, assume a 24-foot extension ladder…”

  35. Jeremy Grimm

    “Kenneth Arrow (1972) famously asserted that trust is a prerequisite for most economic activity.” Seems to me trust is prerequisite for a lot more than most economic activity. What consequences might follow given the present levels of trust between people, politicians, countries … ?

  36. Not surprising when you realize that economists also consider things like friendship, marriage and democracy to be ‘economic activity’ in a sense.

  37. Jeremy Grimm

    Are they not? My divorce and the costs — economic and other have been very costly in many many domains.
    What level of trust do we share and what consequence does that have?

  38. Doesn’t Arrow’s assertion pretty much derail all the ‘rational actors, self-interest’ talk? There is no trust in mainstream economics; everyone is a selfish asshole out to maximize their own gain. Trust doesn’t matter because everyone has perfect knowledge, and thus deceit can’t exist.

  39. For a major global power to be the economic locomotive of the world such as the USA is, it is worth noting that everything that made it so boils down the “Full faith and credit of the taxing authority…” which defines economics even to the point of what constitutes money and what does not.
    Take away that faith (trust) and what you are left with is a third of a billion people who are scarred by the betrayal of all who are doing better than they are.
    There a few movers of opinion more powerful than bailouts to the wealthy even as the rest of us are made to expect downward mobility, or the official published data on inflation which has claimed about 40% of my purchasing power since January 2013 even as the government and Fed say there IS NO INFLATION!
    But, while my trust in the legal tender and accounting standards is broken beyond repair, I do not believe that we can allow ourselves the momentary relief of wallowing in revenge or scapegoating of those who some would have us believe are the fault of this economic disaster we now have.
    Besides analyzing trust we should also remember that problem solving first requires you accurately identify a problem rather than allowing denial and manipulation to justify actions you would not have a few years ago and which you know deep down will fix nothing but make everything worse.
    But, world views do become reality when enough people agree to them, and we saw enough while Bush was president to know that America is not exempt from the power of evil men who will first cause a problem then tell the public they are the only ones who can solve it. Hitler created anarchy in the streets with the brownshirts then assure the people he was the only one who could fix it. Well DUH!

  40. It seems highly-credentialed economists have as big a problem “understanding the phenomenon of trust” as they do spotting fraud epidemics and historic asset-price bubbles. I mean, only someone who checked their last remaining vestiges of common sense at the door to their PhD qualifying exam room could posit a thesis as inane as “surprisingly little is known about what causes us to trust others.” Because “repeated interactions in which the others could choose to fvck us over, but do not do so” is too subtle a concept! If it can’t be expressed in terms of an idealized mathematical model containing impressive-looking coupled nonlinear partial differential equations (no matter how patently absurd the assumptions underlying such), it’s an eternal mystery! Please send more research funding!

  41. Sound of the Suburbs

    You can trust human self-interest and that every system will be biased towards those that put it in place.
    Loading the dice:
    1) Capitalism
    The Aristocracy were there during the transition from Feudalism to Capitalism and barely noticed the difference as there life of luxury and leisure continued as before. Capitalism contains a welfare state for the idle rich.
    2) The monetary system
    Banks create money out of nothing for loans and collect interest on this money they magic out of thin air. Governments borrow money off private banks and taxation has to be used to pay back the interest. The monetary system is a levy on all taxpayers.
    3) The legal system
    Expensive barristers provide the mechanism for the rich to increase their chance of winning the case.
    4) The education system
    A two tier, private and state, education system ensures the wealthy can give their children a better start in life.
    The whole thing is loaded.

  42. Sound of the Suburbs

    Trying to make the system fairer:
    1) Capitalism
    The Classical Economists studied the small state, raw capitalism of the 18th and 19th Century. They noted the two sides of capitalism, its productive side and its parasitic side. Its parasitic side is the welfare state for the idle rich and works through “unearned” income.
    This distinction is buried by neoclassical economics at the end of the 19th Century.
    2) The monetary system
    Two US presidents try and bring the creation of money back under Government control, they are assassinated (Lincoln and Kennedy).
    3) The legal system
    In the US they provide expensive barristers to combat white collar and financial crime, the UK doesn’t bother. Bank lobbyists in the US change the law so that nearly all of the old financial crimes are no longer crimes.
    4) The education system
    Grammar schools come in to provide a meritocratic solution to a privately educated elite. These are later abolished.
    Tried and failed.

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