Trust and Trustworthiness: two perspectives
Psychology and Economics
I’ll be interviewing my colleague Rachel Campagna from the business school on the topic of trust and trustworthiness in negotations. To prepare, I am reading a bunch of her research and it has me thinking about the idea of trust. Rachel is a research psychologist by training, and so takes a psychological approach to trust. Her research on trust is based in emotion and feeling. It’s interesting because it is related but different from the way economists tend to look at trust - which is from a rational actor perspective. Much of game theory is based on the establishment of trust (or not). The economic perspective tends to ask, do you have an incentive to be trustworthy? And the answer tends to be, I can only trust you if I know that you know you will be punished - either by me, or by the institutions we operate inside of (legal system, community, etc.). I suspect we’ll talk some about that. The economic approach is less intuitive than the psychological approach because most economists are actually robots. But I digress.
Psychologists and economists, and even normal humans, are interested in trust. Trust undergirds everything we do in society. Coming back again to the circles of familiarity I have talked about in the last few posts, trust tends to be strongest at the center and declines as we move outward from family to friends to community to strangers.
We are least inclined to trust strangers, but that varies depending on the society we live in, and the institutional structures that surround us. Ancient tribal instincts are to assume strangers represent danger (and possibly targets for profitable exploitation). As I previously wrote, advanced economies that are market-based create impersonal institutions that do not discriminate against, and in fact protect them. This makes it possible to trade in a much wider circle, outside of the people who are known to us. The existence of police and fire departments and court systems that do not discriminate based on in-group identity (vs the Other) enable social trust, which is why I talked about service and submission last week. If we don’t have trust with the people we are interacting with, whether we are trading with them or just existing in proximity with them, we have to take expensive steps to protect ourselves.
Campagna researches trust in the context of negotiations, and one of the things I gained a better understanding of from reading her work was the importance of post-negotiation implementation. You may negotiate a good deal, or what you think is a good deal, but if the person you are negotiating with can vary the degree to which they fulfill the bargain, you are subject to post-negotiation implementation risk. An example would be doing a kitchen remodel. You get three quotes to have your kitchen remodeled. You go with the lowest bidder and sign a contract.You feel like you have made a good deal. But this person is not trustworthy. He uses shoddy materials, takes longer to do the work, finds “unexpected” problems that he uses to negotiate for additional payments, and ultimately you are disappointed with the work, but he has fulfilled the deal, or made you so miserable that you are just happy to see him go. You then have to hire another contactor to fix the mess that the first, untrustworthy contractor made. In addition to the aggravation you have gone through, you are now paying twice. The point is when the negotiation is for delivery of a product or service where the delivering party has the ability to adjust the quality of what is delivered post-negotiation, you are still subject to risk. Even with a deal made, you have to consider whether the parties will deliver as promised.
Campagna uses a theoretical framework from Rousseau et al (1998), that trust is “a psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or behavior of another”. I like this because economists don’t typically talk about feelings, but emotions are what move us to action, not rational calculation. Yet, what brings us to this emotional state where we are prepared to be vulnerable? Campagna and her colleagues differentiate between trust and trustworthiness. In order to arrive at a state of trust, we have to make an evaluation of our counterpart, and determine they are trustworthy.
Trustworthiness is comprised of three factors: ability, benevolence, and integrity. Ability refers to the perception that the trustee has the skills or characteristics to perform well in a specific domain. Benevolence refers to the perception that the trustee has care and concern for the trustor. Integrity refers to the perception that the trustee will adhere to a set of values that the trustor finds acceptable. (Lee, Dirks, & Camagna, 2023)
I think dissecting trustworthiness this way is very interesting. I could promise to do brain surgery on you, and you could believe I mean you well (benevolence), and that I will do my best (integrity), but woo! You do not want me drilling into your skull because I totally lack the ability. So I would not be trustworthy in that particular circumstance, though I totally would be trustworthy if you wanted me to teach you a lesson on how to read a balance sheet. Once I satisfy your test for trustworthiness, you then enter a state of trust.
I don’t think economists would necessarily disagree with this definition of trustworthiness, but economists are particularly interested in transactions between strangers where benevolence may be absent (though the parties may not necessarily feel malice), and integrity may also be absent (at least between the parties because who cares about the Other?). In other words, the parties may not necessarily wish each other ill, but they might also not feel any guilt about cheating on the deal if the opportunity arises. It’s easy to engage in trade with a friend because you know the friend’s ability, you know they are benevolent toward you (they are a friend, otherwise, what are you doing?), and you know if they have integrity. You know a lot about your friend, that is why they are close to the center of your circles of familiarity, and you know exactly how trustworthy they are for a particular transaction. But with a stranger, you have little or no knowledge. So in dealing with strangers whose trustworthiness is difficult to evaluate, you want to know they have self-interest in keeping to the deal, including post-negotiation delivery. Exploring these mechanisms was one of the things that drew me into economics.
Some ways you can create trustworthiness that is not based on benevolence or integrity from an economic perspective include:
Promise repeat business. If you want to sell to me more than once, you have a strong incentive to not cheat. If you cheat me, I will only do business with you once, and then you will lose all of my future business. Unfortunately, I can only trust you as long as you believe I will be coming back again. As soon as you think this is our last transaction, you have an incentive to cheat.
Expensive enforcement. I find a way to make it clear that if you cheat me, I will punish you. I might threaten you with physical violence, for example. In a more civilized society, I will have inspections and staged payments and penalties that may require going to court (costly).
Expensive investments. I make an expensive investment in resources, effort, or time. An example would be building an expensive building. Think of old fashion banks or hospital lobbies - when a company spends a lot of money on a building, they are hoping to be around for a long time. They need repeat business in order to pay for the investments. So even if they are not benevolent or do not have integrity, they are likely to act as if they do, which is all we really care about after all. (Another point here is that companies aren’t human beings - they don’t have benevolence or integrity.) Another example would be learning a foreign language so that you can trade with people who speak it. If I wanted to create trust with foreign customers, I would learn the language. This is an expensive investment of time and effort. In order to make that investment worthwhile, I have to be hoping to do repeat business.
Transactions are much cheaper if you can convince your trading partners you are trustworthy. In fact, most of life is much better if people in general perceive you as trustworthy. There is a large amount of economic value attached to a reputation of trustworthiness. Reputation requires knowledge, which implies you are in the inner circles of familiarity. Think of all of the encounters you have in a day and how trust plays into those encounters. People are willing to give you the benefit of the doubt when things go wrong if they think you are trustworthy. In fact, Campagna has done research on trust violations. If you were trusted before, and you appear to have violated that trust, people will look for ways to explain your trust violation as probably not your fault. Patterns of trust violation use up reputational capital, and people gradually come to see you as untrustworthy, and then they assume any trust violation was willful.
Separate from the economic value, being trustworthy is just part of living a worthy life. I wrote about Adam Smith’s theory of distributive justice a while back. A favorite Smith quote: “Man naturally desires, not only to be loved, but to be lovely; or to be that thing which is the natural and proper object of love” (TMS, p.113). To be trustworthy is a lovely thing.
It’s interesting to dig into another field’s approach to a thing that I have spent a fair amount of time thinking about from the economic lens. I’m looking forward to my conversation - I hope you are too!
Campagna, R. L., Mislin, A. A., Dirks, K. T., & Elfenbein, H. A. (2022). The (mostly) robust influence of initial trustworthiness beliefs on subsequent behaviors and perceptions. human relations, 75(7), 1383-1411.
Campagna, R. L., Mislin, A. A., Kong, D. T., & Bottom, W. P. (2016). Strategic consequences of emotional misrepresentation in negotiation: The blowback effect. Journal of Applied Psychology, 101(5), 605.
Lee, J. I., Dirks, K. T., & Campagna, R. L. (2023). At the Heart of Trust: Understanding the Integral Relationship Between Emotion and Trust. Group & Organization Management, 48(2), 546-580.
Rousseau, DM, Sitkin, SB, Burt, RS, et al. (1998) Not so different after all: A cross-discipline view of trust. Academy of Management Review 23(3): 393-404.
Smith, A. (1976). The theory of moral sentiments. Liberty Fund.