Affinity and Trust joint with Luigi Guiso

Abstract:

Mutually beneficial trades often rely on both trust and trustworthiness. In exchanges where no prior history of behavior is observable, however, where does trust come from? Recent evidence suggests that the level of affinity felt between parties in an exchange positively affects trustworthiness and can, therefore, affect trust beliefs. We propose a simple model incorporating affinity which predicts a positive relationship between trust beliefs, affinity, and trustworthiness and a negative relationship between the dispersion of trust beliefs and affinity. Furthermore, trust beliefs are slower to update in light of a shock to trustworthiness when affinity is high. We show that the model's predictions are supported by data from a proprietary survey of Italian entrepreneurs and a large international survey (Eurobarometer).