The Causal Effect of Trust

Arbeitspapier

Trust affects almost all human relationships – in families, organizations, markets and politics. However, identifying the conditions under which trust, defined as people’s beliefs in the trustworthiness of others, has a causal effect on the efficiency of human interactions has proven to be difficult. We show experimentally and theoretically that trust indeed has a causal effect. The duration of the effect depends, however, on whether initial trust variations are supported by multiple equilibria. We study a repeated principal-agent game with multiple equilibria and document empirically that an efficient equilibrium is selected if principals believe that agents are trustworthy, while players coordinate on an inefficient equilibrium if principals believe that agents are untrustworthy. Yet, if we change the institutional environment such that there is a unique equilibrium, initial variations in trust have short-run effects only. Moreover, if we weaken contract enforcement in the latter environment, exogenous variations in trust do not even have a short-run effect. The institutional environment thus appears to be key for whether trust has causal effects and whether the effects are transient or persistent.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 7324

Classification and Topics

• Classification: Wirtschaft ; Design of Experiments: Laboratory, Individual ; Institutions: Design, Formation, Operations, and Impact ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Institutions and the Macroeconomy
• Subject: trust ; causality ; equilibrium selection ; belief distortions ; incomplete contracts ; screening ; institutions

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bartling, Björn ; Fehr, Ernst ; Huffman, David B. ; Netzer, Nick
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/185522
• Last update: 10.03.2025, 11:44 AM CET