Affinity, Trust, and Information

Alexey Makarin and Luigi Guiso

No 15250, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Mutually beneficial trades often rely on both trust and trustworthiness. In exchanges where no history of behavior is observable, however, where does trust come from? Recent evidence suggests that the level of affinity parties in an exchange feel for each other positively affects trustworthiness and can, therefore, affect trust. We propose a simple model that predicts a positive relationship between trust beliefs, affinity, and trustworthiness and a negative relationship between the dispersion of trust beliefs and affinity level. Furthermore, the model suggests that trust should be slower to update after a shock to trustworthiness when affinity is high. We show that the model's predictions are supported by data from two unrelated datasets—a proprietary survey of Italian entrepreneurs and an extensive international survey (Eurobarometer). Finally, using data on international trade, we show that, in line with our model, adverse shocks to trustworthiness cause a reallocation of trade from low-affinity to high-affinity partners, and especially so in trust-intensive industries.

Keywords: Trust; Affinity; Trustworthiness; Information acquisition (search for similar items in EconPapers)
JEL-codes: D8 D83 D9 F1 Z1 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-eur and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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