Of Trust and Trustworthiness

Of Trust and Trustworthiness

Social scientists have long studied the importance of trust in economic as well as other relationships. These studies began in earnest with large-scale surveys administered by the National Opinion Research Center beginning in 1972. This survey asks participants the simple question, “Generally speaking, would you say that most people can be trusted or that you can’t be too careful in dealing with people?” Early work using these data shows a stark relationship between the number of organizations to which a person belongs and the degree to which the person trusts people in general. By itself it might seem that this result occurs from reverse causality. In other words, it could be that belonging to a group causes one to trust others, or it could be that trusting others leads one to join groups. Another possibility is that some other factor influences both trust of others and joining groups. For example, the prevalence of the Lutheran Church within communities throughout the United States in the early part of the 20th century strongly predicts both the degree of trust indicated by responses to the survey question and the prevalence of participation in social groups. It could be that the teachings and culture of the Lutheran Church caused both trusting behavior and a tendency toward social connections.

These early survey results on trust led many to suppose that trust, and perhaps trustworthiness, is related to social capital. Social capital is a term originating in sociology; it refers to the durable social relationships one has and can draw upon as resources for goods—tangible, emotional, or informational. This leads to a few predictions about who should and should not be trusting of others. For example, those who are older might have built up more social capital than those who are younger, leading older people to be more trusting. College students spend valuable time not only building skills for the workplace but also building social capital, thus leading college graduates to be more trusting than others. Older people and more-educated people do belong to more groups and organizations. In fact, these college-educated and older people also appear to be more trusting according to the results of the survey. But it is difficult for economists to take survey results blindly. In this case, the survey question is so vague that it is difficult to know whether it is really measuring how people behave.

Edward Glaeser led a team of researchers in examining how social capital relates to trust and trustworthiness using experimental methods. Participants in their experiments were first asked a series of questions regarding their relationships with others and how often they trust others. A few weeks later they were asked to play a modified trust game. At the beginning of this game, students were paired with other subjects and asked to fill out a survey together. This survey asks questions about how well the two participants know each other, along with other questions about friendships, to the point of requesting a list of all friends they have in common. The pairs were then split into separate rooms and roles were assigned. Senders were given $15 and could decide to send whatever portion of that $15 they wished. Receivers would then receive double the amount that was sent and could decide how much of the money they received they wished to return to the sender. But before the sender decided how much to send, some receivers could send one of two messages to the sender. They could send a message promising to return at least as much as was sent or a message that they made no promise. These promises were not binding, and they constitute what economists refer to as cheap talk. Cheap talk is essentially any nonbinding communication. In other words, one could say one promised

to return at least as much as was sent, and then decide to keep all of the money. Of the receivers, 48 percent of those who could send messages chose not to promise to return at least as much as was sent. Of those who received money, 68 percent of the receivers chose to send back exactly the amount that had been sent, keeping the excess returns for themselves. Alternatively, when promises were not allowed, only 48 percent returned as much as had been sent. Thus, it appears that the ability to promise to return at least as much as was sent set up a sort of social norm of returning exactly as much as had been sent.

The amount that participants sent and returned depended heavily on the number of social connections the participants had in general and more specifically on how socially connected the sender and receiver were. For example, for every month the sender and receiver had known each other before the experiment, the sender decided to send $0.10 more on average. Thus, once a sender had known the receiver a year, she would be willing to trust the receiver with approximately $1.20 more than she would send a complete stranger. On the other hand, receivers sent back 0.6 percent more for each month they had known the receiver. Apparently social capital accumulates slowly.

Having friends in common increased the amount one was willing to return, but it had no real impact on the amount sent. Individual measures of social capital were largely unrelated to the amount the sender decided to send. The only question that had a substantive relationship to the amount sent was whether the participant was involved in a sexual relationship with any partner. On the other hand, the sender’s number of close friends, hours spent volunteering, consumption of beer, and whether the sender was involved in a sexual relationship all increased the amount the receiver decided to send back. Oddly, the sender’s social capital appears to influence the trustworthiness of the receiver. Because senders in most cases were randomly assigned, this suggests a causal relationship between a person’s social connectedness and how trustworthy others behave toward that person. This provides a plausible explanation for the survey data. Social capital might not directly influence how trusting a person is. Rather, social capital may be correlated with how trustworthy a person believes others are given that social capital is associated with trustworthiness generally.

This view of trust suggests that our observation of trust, say in a trust game, must be very related to one’s aversion to risk. Trusting another person inherently involves some degree of risk. Clearly if one is less risk averse, one may be willing to send more money given the same assessment of the probability it will be paid back. Is trust just an artifact of risk preferences and beliefs, or is it an independent behavior all on its own?

Ernst Fehr has devoted substantial effort to answering this question. He points to evidence from a wide array of trust games. In one set, participants were randomly given drugs that affect psychosocial functioning before they participated in the trust games. Those given the drugs were much more trusting, but the drug did not affect their behavior in other experiments involving only risk and not trust. Although risk aversion is related to trust in survey work, trust is not entirely a function of risk preferences. Fehr finds that trust is a result of both risk preferences and social preferences. In his view, trust and trustworthiness develop as a result of the actions of all actors involved. In this case, both trust and trustworthiness can result from a structure much like, though clearly distinct from, Rabin’s fairness preferences, where beliefs regarding others’ motives can switch on (or switch off) trust-related behavior.

Mathematical models of trust behavior have been elusive, and none have come into wide use or acceptance. Thus, this chapter is focused primarily on the basic behaviors that have been observed and the relationships that have been identified rather than a theoretical exploration.

EXAMPLE 16.2 Keep on Smiling

Have you ever noticed how spokesmen and spokeswomen in commercials talk through a wide and often exaggerated smile? We are advised to keep a smile on our face in job interviews, in social situations, or even when we are teaching a class. The thought is that by smiling, we can connect with those we are speaking to, win their sympathy, and be more persuasive. In other words, a smile can allow us to leverage our social capital. Just how much is a smile worth?

This was the object of a series of psychological experiments by Jörn Scharlemann and a team of researchers. Within these experiments, participants were led to believe they were playing a game with a randomly paired partner. The game was structured as pictured in Figure 16.3. This game is much like the take-it-or-leave-it game presented in Chapter 14. The SPNE of this game has each player choosing T at any node in which he or she controls the game. In the last period, Player 1 would prefer 1.20 to 1.00, and would thus choose T. In the second node, Player 2 would rather have 1.25 than the 1.20 that would result from choosing L, and thus chooses T. Given that Player 2 will choose T, Player 1 then would decide to choose T at the first node in order to obtain 1.00 rather than 0.80. However, a trusting person might decide to choose L if she believes Player 2 is trustworthy and thus is willing to forgo the extra 0.05 in order to be true to the trust Player 1 has placed in her.

Before making her decision, Player 1 is given a picture of the player she is said to be paired with. This being a psychology experiment, the participants were deceived regarding these partners. In fact, they were playing against predetermined strategies programmed into a computer. Nonetheless, each player believed she was playing against the player pictured. The experimenters threw in one added twist. There were actually two pictures of each hypothetical Player 2. One of the pictures depicted the player smiling, and the other depicted the player with a straight face. Participants were randomly assigned to see either a smiling partner or a straight-faced partner. Overall, participants were about 13 percent more likely to choose L in the first node

if their supposed opponent was smiling. Thus, they took the smile as a signal of being trustworthy.

The difference between those seeing smiling and straight-faced opponents was much larger for male participants than female participants. Male participants trusted a smiling opponent nearly 80 percent of the time, compared to 59 percent of the time with an opponent who was not smiling. On the other hand, the corresponding percentages choosing to trust were 58 percent and 52 percent for female participants. Apparently girls and women are not as easily taken in by a smile. Further experiments by the same team found that the assessed sincerity of the smile or other facial expressions also had an impact on the willingness of Player 1 to trust Player 2.

So why might it be so important to smile? With nothing to go on but a snapshot of a person’s facial expressions, people somehow act as if they can judge the very character of an individual. Some research has shown that such snap judgments tend to persist even in very long-term relationships. Such a snap judgment could play a role in long-term payoffs for both the judge and the subject of the judgment.

EXAMPLE 16.3 Economic Consequences of Trust

As with most experiments, one must question whether the behavior we observe in trust games is really representative of how people behave in the real world. Given that trust is so important in reducing transaction costs, one would naturally hypothesize that societies with higher levels of trust might reap some dividends from that trust. With higher levels of trust, less needs to be spent in monitoring business dealings or other activities, perhaps lowering the taxes necessary to support enforcement. Moreover, the greater the level of trust, the less effort one needs to exert to determine if one’s business partners are dealing fairly with one. In fact, using an international survey of 21 countries including measures of trust and data on national income, Stephen Knack and Philip Keefer find some evidence that increased levels of trust are associated with accelerated growth in gross domestic product. Other measures of social capital in a country behaved similarly. Several others have found similar results, confirming that trust and social capital can play an important role in macroeconomic performance of the national economy.

The next natural question one may ask is whether trust, as measured by a trust game, is also important in an economy? Survey measures of trust are not motivated by economic outcomes. It may be that many are willing to say they are trusting but not to act that way. Issues of trust can be of supreme importance in trying to help bring those living in developing nations out of poverty. To examine the impact of trust on economic growth and performance in a community, Michael Carter and Marco Castillo conducted a series of trust experiments in 14 communities in South Africa. Half of these communities were urban, and the other half were rural. The participants were relatively poor by U.S. standards, and the average participant had only six total years of education. The amounts of money involved in the trust game were on the order of two days’ wages.

On average, senders trusted their anonymous partners with 53 percent of their purse, remarkably close to the percentages observed in U.S. experiments. However, the amounts sent varied substantially depending on which village the participant was from.

Source: Carter, M.R., and M. Castillo. “Trustworthiness and Social Capital in South Africa: Analysis of Actual Living Standards Data and Artifactual Field Experiments.” Economic Development and Cultural Change 59, Issue 4 (2011): 695–722, University of Chicago Press.

Table 16.1 displays the median amount given by those from each of the 14 villages. Note that senders tended to choose amounts that were around 10 percent increments of their purse to send to the receiver, resulting in the tidy 40 percent, 50 percent, and 60 percent results. When the money was sent, it was tripled before the receiver got it. Thus, receivers who decided to send back 33 percent would be returning to the sender just what was sent and keeping the rest of the pot for themselves. This was the median response in most of the villages, suggesting that participants could be trusted to return the amount they were entrusted with but would not share the profits. The average receiver returned 38 percent of the pot, suggesting a small premium for trusting. Only 20 percent of receivers returned less than was received, suggesting a relatively high level of trustworthiness.

More interesting is that villages with higher levels of trust also tend toward higher levels of trustworthiness and reciprocity. Reciprocity refers to participants’ intention to reward senders for trusting them by returning more than was sent. This is an effect similar to the rewarding of kindness in a fairness equilibrium. In fact, many use the term reciprocity to represent behavior embodied in the addition of kindness functions to the standard utility function. As the sender increased the amount sent by about 6 percent of the original purse the sender was endowed with, the average amount returned by the receiver increased by 12.5 percent, demonstrating reciprocity. The correlation coefficient between the percentage of budget sent and the percent of budget returned is 0.66, suggesting a significant positive relationship. This should not be too surprising. It is unlikely people would develop trust for others if those in the community around them are untrustworthy.

The notion that trust and trustworthiness may be a shared community characteristic leads one to wonder exactly what the overall consequences might be of living in a trusting community rather than a less-trusting community. Carter and Castillo found that