Trust as belief or behavior?

Abstract

Despite its proposed importance for economic performance, there seems to be little agreement on what trust really is. In economics, trust is generally viewed as a belief regarding the action that is to be expected from others. This contrasts with the view that trust is a way of acting. In his influential book on the nature of explanation in the social sciences, Jon Elster argues that trusting is to act with few precautions. I argue that it is possible to reconcile these seemingly conflicting views about trust. I develop a simple model of trust where both beliefs and precautions play an important role – and where Elster’s understanding of trust can be viewed as a special case.

Keywords:

• Incomplete information
• behavioral risk
• trust
• trustworthiness
• precautions

JEL:

• D01
• D23
• Z13

Acknowledgments

I thank Gunnar Eskeland, Karl Kerner, Tone Ognedal, and participants of the FIBE conference at the Norwegian School of Economics, 2016, for helpful comments. I am also grateful for comments of two referees that significantly improved the paper.

Notes

¹ This question is included in the European Social Survey, the American General Social Survey, and in the World Values Survey. Respondents can answer in a binary way by agreeing either with ‘Most people can be trusted’ or with ‘Can’t be too careful’ (Fehr 2009).

² See Ostrom and Walker (2003), Fehr (2009) and Algan and Cahuc (2013) for more details and references.

³ See Nooteboom (2002; 2007) for an in-depth discussion of trust from a social-economic perspective.

⁴ See for example McMaster and Sawkins (1996) for an early discussion of the role of trust and trustworthiness in contract formation and execution. They argue that policies based on explicit economic incentives may be counterproductive because they undermine preexisting values to act in socially beneficial ways. This assertion has gained a lot of empirical support over the intervening years (see Bowles and Polania-Reyes (2012), and references cited therein).

⁵ See also Grimen (2009; 2010) for a related discussion.

⁶ Elster’s book is widely used in courses all around the world that cover the methodology of the social sciences (including economics).

⁷ This statement is discussed and defended in a series of books and articles. See e.g. Hardin (1996; 2001; 2002; 2006).

⁸ See Torsvik (2000) for an extended discussion and Gibbons (2001) for a more formal proof of this result.

⁹ See also Smith (2000) for a critical discussion of the iterated prisoners’ dilemma as a starting point for an understanding of trust.

¹⁰ See Ostrom and Walker (2003); Bowles and Gintis (2011); Johnson and Mislin (2011) and references cited therein.

¹¹ See e.g. Hollis (1998), Fehr and Fischbacher (2004), Henrich and Henrich (2007), Horne (2009) and Opp (2013) for a more general discussion on norms, trust, and cooperative behavior.

¹² Note that if all trustees are trustworthy, and all trustors know this, then we no longer have a trust problem. The issue of trust is relevant only as long as there is some chance of being met by untrustworthy behavior.

¹³ Note also that this assumption is done for simplicity. A person may be trustworthy but still not have the competence to do what he is trusted to do. It may also be the case that a person is trustworthy in one context, but not in another. I abstract from these possibilities in the model that follows.

¹⁴ This idea is taken from Güth and Kliemt (1994), although they analyze a somewhat different question than the one studied here. Güth and Kliemt are primarily concerned with seeking out the conditions under which players committed to act trustworthy can survive in an evolutionary competition with players who only care about their own well-being.

¹⁵ According to Yamagishi and Yamagishi (1994), trust becomes important when people consider moving out of established networks and communities to form relationships with new partners and new opportunities. The main function of trust is that it acts as a ‘booster’ enabling people to move out of mutually committed relationships and to invest their resources in more uncertain but at the same time more profitable projects.

¹⁶ Banfield’s study is illustrative and classic. Some more contemporary examples are presented and discussed in Fukuyama (1995) and Hardin (2004).