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On The Economics and Biology of Trust

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Author Info
Ernst Fehr

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Abstract

In recent years, many social scientists have claimed that trust plays an important role in economic and social transactions. Despite its proposed importance, the measurement and the definition of trust seem to be not fully settled, and the identification of the exact role of trust in economic interactions has proven to be elusive. It is still not clear whether trust is just an epiphenomenon of good institutions or whether it plays an independent causal role capable of shaping important aggregate economic outcomes. In this paper, I rely on a behavioral definition of trust that enables us to relate it to economic primitives such as preferences and beliefs. I review strong biological and behavioral evidence indicating that trusting is not just a special case of risk-taking, but based on important forms of social preferences such as betrayal aversion. Behaviorally defined trust also opens the door for understanding national and ethnic trust differences in terms of differences in preferences and beliefs, and it suggests ways to examine and interpret a causal role of trust. (JEL: A13, C90, D10, O10) (c) 2009 by the European Economic Association.

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Publisher Info
Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 7 (2009)
Issue (Month): 2-3 (04-05)
Pages: 235-266
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Handle: RePEc:tpr:jeurec:v:7:y:2009:i:2-3:p:235-266

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Find related papers by JEL classification:
A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
D10 - Microeconomics - - Household Behavior - - - General
O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General

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References listed on IDEAS
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    Other versions:
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  23. Iris Bohnet & Fiona Greig & Benedikt Herrmann & Richard Zeckhauser, 2008. "Betrayal Aversion: Evidence from Brazil, China, Oman, Switzerland, Turkey, and the United States," American Economic Review, American Economic Association, vol. 98(1), pages 294-310, March. [Downloadable!]
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  24. Reuben, Ernesto & Sapienza, Paola & Zingales, Luigi, 2008. "Is mistrust self-fulfilling?," MPRA Paper 10653, University Library of Munich, Germany. [Downloadable!]
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  27. Falk, Armin & Fischbacher, Urs, 2006. "A theory of reciprocity," Games and Economic Behavior, Elsevier, vol. 54(2), pages 293-315, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Paolo Pinotti, 2009. "Trust and Regulation: Addressing a Cultural Bias," Temi di discussione (Economic working papers) 721, Bank of Italy, Economic Research Department. [Downloadable!]
  2. Breuer, Janice Boucher & McDermott, John, 2009. "Trustworthiness and economic performance," MPRA Paper 16777, University Library of Munich, Germany. [Downloadable!]
  3. S. Anger & F. Frick & J. Goebel & M. Grabka & O. Groh-Samberg & H. Haas & E. Holst & P. Krause & M. Kroh & H. Lohmann & J. Schupp & I. Sieber & T. Siedler & C. Schmitt & C.K. Spieß & I. Tucci & G.G. , 2009. "Developing SOEPsurvey and SOEPservice: The (Near) Future of the German Socio-Economic Panel Study (SOEP)," SOEPpapers 155, DIW Berlin, The German Socio-Economic Panel (SOEP). [Downloadable!]
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