A social interactions perspective on trust and its determinants

Abstract

This article examines whether there are social influences on the decisions made by individuals about whether to trust others – relative strangers – in their respective societies. There are two possible types of social influences on the trust decision: first, contextual or exogenous social interactions effects would exist if there were country-specific characteristics that made people more or less trusting of others. Second, endogenous social interactions effects would exist if the behaviour (i.e. the trust decisions) of others exerted influence on the individual's decision to trust others, such that people are more or less trusting of others as those others are themselves more or less trusting. When there is behavioural endogeneity of the second sort, people would tend to conform to the particular norm or culture of trust prevailing in their society. There would also be feedbacks between individual trust decisions that result in multiple social trust equilibria, which alone could explain both the within-country conformity in trust decisions and the global diversity in average trust apparent in the World Values Survey trust data. The empirical evidence provided in this paper confirms the existence of composite contextual and endogenous social interactions effects on the trust decision, and though it is difficult to separately identify these two effects, the estimated models strongly suggest that endogenous effects in trust exist.