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Trust as risk and the foundation of investment value

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  • Olsen, Robert A.
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    Abstract

    Trust is an essential ingredient of the investment process because investing is complex, the world contains irreducible uncertainty, and humans are naturally predisposed to cooperate. Traditional financial models inappropriately treat trust as probability or implicitly ignore it. This paper argues that trust has both cognitive and affective attributes that make it an important determinant of perceived investment risk. Specifically, perceived risk varies inversely with trust. This paper also discusses how trust offers a logical and parsimonious explanation for many financial asset pricing anomalies. Trust is the unseen faith underlying investment value.

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    File URL: http://www.sciencedirect.com/science/article/B6W5H-4S92TMG-8/2/6bf57601636e5efb7a6d281e83829293
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics).

    Volume (Year): 37 (2008)
    Issue (Month): 6 (December)
    Pages: 2189-2200

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    Handle: RePEc:eee:soceco:v:37:y:2008:i:6:p:2189-2200

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    Web page: http://www.elsevier.com/locate/inca/620175

    Related research

    Keywords: Trust Financial risk Uncertainty Anomalies;

    References

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    Cited by:
    1. Anne Corcos Fran├žois Pannequin & Sacha Bourgeois-Gironde, 2012. "Aversions to trust," Post-Print ijn_00734564, HAL.

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