Trust (social science)
Economics

Trust in economics explains the difference between actual human behavior and behavior that could be explained by people's desire to maximize utility. In economic terms, trust can explain a difference between Nash equilibrium and the observed equilibrium. Such an approach can be applied to individual people as well as to societies.

Trust is important to economists for many reasons. Taking the " Market for Lemons " transaction popularized by George Akerlof as an example, if a potential buyer of a car does not trust the seller not to sell a lemon, the transaction will not take place. The buyer will not buy without trust, even if the product would be of great value to the buyer. Trust can act as an economic lubricant, reducing the cost of transactions between parties, enabling new forms of cooperation, and generally furthering business activities, employment, and prosperity. This observation prompted interest in trust as a form of social capital and research into the process of creation and distribution of such capital. A higher level of social trust may be positively correlated with economic development: Even though the original concept of "high trust" and "low trust" societies may not necessarily hold, social trust benefits the economy and a low level of trust inhibits economic growth. The absence of trust restricts growth in employment, wages, and profits, thus reducing the overall welfare of society. The World Economic Forums of 2022 and 2024 both adopted the rebuilding of trust as their themes.

Theoretical economical modelling demonstrates that the optimum level of trust that a rational economic agent should exhibit in transactions is equal to the trustworthiness of the other party. Such a level of trust leads to an efficient market. Trusting less leads to losing economic opportunities, while trusting more leads to unnecessary vulnerabilities and potential exploitation. Economics is also interested in quantifying trust, usually in monetary terms. The level of correlation between an increase in profit margin and a decrease in transactional costs can be used as an indicator of the economic value of trust.

Economic "trust games" empirically quantify trust in relationships under laboratory conditions. Several games and game-like scenarios related to trust have been tried, with certain preferences to those that allow the estimation of confidence in monetary terms. In games of trust the Nash equilibrium differs from Pareto optimum so that no player alone can maximize their own utility by altering their selfish strategy without cooperation. Cooperating partners can also benefit. The classical version of the game of trust has been described as an abstract investment game, using the scenario of an investor and a broker. The investor can invest some fraction of his money, and the broker can return to the investor some fraction of the investor's gains. If both players follow their naive economic best interest, the investor should never invest, and the broker will never be able to repay anything. Thus the flow of money, its volume, and its character is attributable entirely to the existence of trust. Such a game can be played as a once-off, or repeatedly with the same or different sets of players to distinguish between a general propensity to trust and trust within particular relationships. Several variants of this game exist. Reversing rules leads to the game of distrust, pre-declarations can be used to establish intentions of players, while alterations to the distribution of gains can be used to manipulate the perceptions of both players. The game can be played by several players on the closed market, with or without information about reputation.

Other interesting games include binary-choice trust games and the gift-exchange game. Games based on the Prisoner's Dilemma link trust with economic utility and demonstrate the rationality behind reciprocity.

The popularization of e-commerce led to new challenges related to trust within the digital economy and the desire to understand buyers' and sellers' decisions to trust one another. For example, interpersonal relationships between buyers and sellers have been disintermediated by the technology, and consequentially they required improvement. Websites can influence the buyer to trust the seller, regardless of the seller's actual trustworthiness. Reputation-based systems can improve trust assessment by capturing a collective perception of trustworthiness; this has generated interest in various models of reputation.
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