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On the Economics and Biology of Trust

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Author Info
Fehr, Ernst () (University of Zurich)

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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.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3895.

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Length: 40 pages
Date of creation: Dec 2008
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Handle: RePEc:iza:izadps:dp3895

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Related research
Keywords: trust; preferences; beliefs; biological basis;

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Find related papers by JEL classification:
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
D00 - Microeconomics - - General - - - General
D2 - Microeconomics - - Production and Organizations
D7 - Microeconomics - - Analysis of Collective Decision-Making
D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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References listed on IDEAS
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.:
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  2. Michael Naef & Jürgen Schupp, 2009. "Measuring Trust: Experiments and Surveys in Contrast and Combination," SOEPpapers 167, DIW Berlin, The German Socio-Economic Panel (SOEP). [Downloadable!]
    Other versions:
  3. Charles Bellemare & Sabine Kröger & Arthur van Soest, 2007. "Preferences, Intentions, and Expectations: A Large-Scale Experiment with a Representative Subject Pool," IZA Discussion Papers 3022, Institute for the Study of Labor (IZA). [Downloadable!]
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  8. Fehr, Ernst & Falk, Armin, 2002. "Psychological Foundations of Incentives," IZA Discussion Papers 507, Institute for the Study of Labor (IZA). [Downloadable!]
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  16. Dean S. Karlan, 2005. "Using Experimental Economics to Measure Social Capital And Predict Financial Decisions," Working Papers 909, Economic Growth Center, Yale University. [Downloadable!]
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  18. Fehr, Ernst & Kirchsteiger, George & Riedl, Arno, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 437-59, May. [Downloadable!] (restricted)
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  20. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
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  22. Martin Brown & Armin Falk & Ernst Fehr, 2004. "Relational Contracts and the Nature of Market Interactions," Econometrica, Econometric Society, vol. 72(3), pages 747-780, 05. [Downloadable!] (restricted)
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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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  25. Laura Schechter, 2006. "Trust, trustworthiness, and risk in rural Paraguay," Experimental Economics, Springer, vol. 9(2), pages 173-173, June. [Downloadable!] (restricted)
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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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  28. Hong, Kessely & Bohnet, Iris, 2007. "Status and distrust: The relevance of inequality and betrayal aversion," Journal of Economic Psychology, Elsevier, vol. 28(2), pages 197-213, April. [Downloadable!] (restricted)
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  30. Gary E Bolton & Axel Ockenfels, 2006. "Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments: Comment," American Economic Review, American Economic Association, vol. 96(5), pages 1906-1911, December. [Downloadable!]
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Full references

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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