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Title: Affinity, Trust, and Information

Author(s): Luigi Guiso and Alexey Makarin

Publication Date: September 2020

Keyword(s): Affinity, Information Acquisition, Trust and trustworthiness

Programme Area(s): Public Economics

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.

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Bibliographic Reference

Guiso, L and Makarin, A. 2020. 'Affinity, Trust, and Information'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15250