A Measure of Trust

 

Microeconomics

Faculty Researchers Iris Bohnet, Professor of Public Policy; Richard Zeckhauser, Ramsey Professor of Political Economy; Harvard Kennedy School Paper Title Trust and the Reference Points for Trustworthiness in Gulf and Western Countries Coauthor Benedikt Hermann, European Commission

“Why is private investment so low in the Persian Gulf compared to Western countries?” That was the starting point for an inquiry conducted by Harvard Kennedy School professors Iris Bohnet and Richard Zeckhauser and their colleague Benedikt Hermann of the European Commission. Though the question seems simple enough, the answer is anything but, touching as it does on deeply held cultural attitudes regarding trust and betrayal.

Trust enters the equation because “investment requires placing one’s funds in the hands of another person,” the authors write. “Not surprisingly, invest­ment rates are closely associated with people’s willingness to trust others.” The explanation, they surmise, depends on “regional differences in people’s willing­ness to trust strangers.”

To see if this argument would hold up, they conducted experiments with 736 student subjects in three Gulf countries (Kuwait, Oman, and the United Arab Emirates) and two Western countries (Switzerland and the United States). The first experiment was a modified version of a trust game commonly employed by economists and psychologists. The game goes roughly as follows: A player will automatically collect $10 if he (or she) decides not to trust an anonymous, unseen partner. In this case the partner will also collect $10. However, if the first player decides to trust the partner, and the partner proves worthy of that trust, both will collect $15. The partner may choose to betray the trust and get $22, in which case the first player will get only $8.

Bohnet, Zeckhauser, and Hermann modified this game by determining each player’s “minimal acceptable probability of trustworthiness”— in other words, the percentage of unidentified partners that have to demonstrate trustworthiness before that player is willing to trust.

The partners are asked, in turn, whether they would “reward” the trust of the first player or betray it. By questioning all partners in the game, the researchers determined the actual percentage of trustworthiness, which might, for example, be 70 percent. If the first player requires a 90 percent level of trustworthiness, he will play it safe and get $10. If, on the other hand, he is comfortable with a 50 percent level of trustworthiness, he will trust the partner, with his payoff depending on the choice his partner makes.

After one further modification — to separate an unwillingness to take any risk from choices that involve trustworthiness — the researchers reached the following conclusion: People in the Gulf countries studied are willing to trust if at least 70 percent of the people are trustworthy, whereas people from the Western countries studied will trust if just 52 percent of the people are trustworthy. These numbers reflect important societal differences, the authors maintain. In the Gulf, where dislike of betrayal is high, people tend to conduct business with those they know — their family or clan — to minimize the chances of being taken advantage of. “If your air-conditioner breaks, you’re not going to just pull a name out of the Yellow Pages,” Zeckhauser says. “Of course, that can be a problem if your family doesn’t have an air-conditioning repairman. (Mine doesn’t.)”

Western people are generally less worried about betrayal because of protections afforded them through the legal system. “For some, the breach of a contract or broken trust is just a matter of business,” Bohnet says. “As long as they are compensated for losses, they just move on. In the West trust tends to be fostered by decreasing the cost of betrayal through legal remedies, whereas in Gulf countries it tends to be fostered through relationships that decrease the likelihood of betrayal.” As a consequence, introducing the tools of Western contract law might not boost levels of investment or business in the Gulf.

Zeckhauser agrees that this paper highlights the problem without providing a cure. “We’ve merely offered a bit of diagnosis,” he says. “But in this case diagnosis might be the first step toward effective therapy.” - by Steve Nadis

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"Investment requires placing one's funds in the hands of another person. Not surprisingly, investment rates are closely associated with people's willingness to trust others."