Trust as risk and the foundation of investment value

Robert A. Olsen

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2008, vol. 37, issue 6, 2189-2200

Abstract: Trust is an essential ingredient of the investment process because investing is complex, the world contains irreducible uncertainty, and humans are naturally predisposed to cooperate. Traditional financial models inappropriately treat trust as probability or implicitly ignore it. This paper argues that trust has both cognitive and affective attributes that make it an important determinant of perceived investment risk. Specifically, perceived risk varies inversely with trust. This paper also discusses how trust offers a logical and parsimonious explanation for many financial asset pricing anomalies. Trust is the unseen faith underlying investment value.

Keywords: Trust; Financial; risk; Uncertainty; Anomalies (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:37:y:2008:i:6:p:2189-2200

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