Affinity, Trust, and Information

47 Pages Posted: 12 Sep 2020

See all articles by luigi guiso

luigi guiso

affiliation not provided to SSRN

Alexey Makarin

Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR)

Date Written: September 2020

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: Affinity, Information Acquisition, Trust, trustworthiness

JEL Classification: D8, D83, D9, F1, Z1

Suggested Citation

guiso, luigi and Makarin, Alexey, Affinity, Trust, and Information (September 2020). Available at SSRN: https://ssrn.com/abstract=3688205

Luigi Guiso (Contact Author)

affiliation not provided to SSRN

Alexey Makarin

Einaudi Institute for Economics and Finance (EIEF)

Via Sallustiana, 62
Rome, Lazio 00187
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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