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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.

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Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number iewwp399.

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Date of creation: Jan 2009
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Handle: RePEc:zur:iewwpx:399

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Find related papers by JEL classification:
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
D0 - Microeconomics - - 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!]
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  3. Gary Charness, 2004. "Attribution and Reciprocity in an Experimental Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 665-688, July. [Downloadable!]
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  4. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April. [Downloadable!] (restricted)
  5. 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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  6. Ernst Fehr & Michael Naef & Klaus M. Schmidt, 2006. "Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments: Comment," American Economic Review, American Economic Association, vol. 96(5), pages 1912-1917, December. [Downloadable!]
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  10. 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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  11. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The Role of Social Capital in Financial Development," American Economic Review, American Economic Association, vol. 94(3), pages 526-556, June. [Downloadable!]
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  12. 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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  14. 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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  15. Lorenz Goette & David Huffman & Stephan Meier, 2006. "The Impact of Group Membership on Cooperation and Norm Enforcement: Evidence Using Random Assignment to Real Social Groups," American Economic Review, American Economic Association, vol. 96(2), pages 212-216, May. [Downloadable!]
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  16. Reuben, Ernesto & Sapienza, Paola & Zingales, Luigi, 2008. "Is mistrust self-fulfilling?," MPRA Paper 10653, University Library of Munich, Germany. [Downloadable!]
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  17. Laura Schechter, 2006. "Trust, trustworthiness, and risk in rural Paraguay," Experimental Economics, Springer, vol. 9(2), pages 173-173, June. [Downloadable!] (restricted)
  18. 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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  20. 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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  21. Dufwenberg, Martin & Kirchsteiger, Georg, 2004. "A theory of sequential reciprocity," Games and Economic Behavior, Elsevier, vol. 47(2), pages 268-298, May. [Downloadable!] (restricted)
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  22. Cox, James C., 2004. "How to identify trust and reciprocity," Games and Economic Behavior, Elsevier, vol. 46(2), pages 260-281, February. [Downloadable!] (restricted)
  23. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series 1042, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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  24. Eckel, Catherine C. & Wilson, Rick K., 2004. "Is trust a risky decision?," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 447-465, December. [Downloadable!] (restricted)
  25. Huck, Steffen & Ruchala, Gabriele K. & Tyran, Jean-Robert, 2006. "Competition Fosters Trust," CEPR Discussion Papers 6009, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  26. 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.
  27. 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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  28. Bohnet, Iris & Zeckhauser, Richard, 2004. "Trust, risk and betrayal," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 467-484, December. [Downloadable!] (restricted)
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  29. 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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  30. Gary Charness & Guillaume R. Frechette & John H. Kagel, 2004. "How Robust is Laboratory Gift Exchange?," Experimental Economics, Springer, vol. 7(2), pages 189-205, 06. [Downloadable!]
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  31. 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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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. Breuer, Janice Boucher & McDermott, John, 2009. "Trustworthiness and economic performance," MPRA Paper 16777, University Library of Munich, Germany. [Downloadable!]
  2. Paolo Pinotti, 2009. "Trust and Regulation: Addressing a Cultural Bias," Temi di discussione (Economic working papers) 721, Bank of Italy, Economic Research Department. [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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