Thursday, December 3, 2009

We need public data on general trustworthiness

Trust is important for transactions, but can easily be exploited. So it is important to understand what creates it. I reported before that to create trust one must constantly remind people what is expected of them. But what consequences does trust have? It is well known that an economy with higher levels of mutual trust will perform better. What about individual trust and individual performance?

Jeffrey Butler, Paola Giuliano and Luigi Guiso find, using the European Social Survey, that the relationship is non-monotone. People who consider themselves little trustworthy think the same of others, transact less and end up with lower income. However, people think they are very trustworthy think others are as well, end up being cheated more than average and have lower income income as well. Only the middle-of-the-road guys get it tight. Butler, Giuliano and Guiso thus argue that this is really an issue of information about the general level of trustworthiness in an economy. If being were better informed, they wold do better. We should publish a trustwothiness index n a regular basis, just the the CPI or consumer sentiment.

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