Behavioral finance FAQ / Glossary (Trust)

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i: incidental

Trust

See belief, obedience, certainty,
reputation, belief, gullibility

Being so sure that it is reliable?

But without trust, however subjective,
we would still have a pre-Neanderthal economy.


 Definition

Trust is a strong belief, a reliance 
verging on certainty
that

* a person,

* a group, an institution,

* an object or asset,
* a number (statistic, account),

* a theory, model or method,

* a source of information

* or whatever,
will not prove to be fake or will not
let us down
.

Trust as an emotion


Like for all beliefs (see that word), there is some feeling / emotion behind
trust,
as it cannot be based on full rational evidence.

The familiarity and the affect heuristic (see that phrase) play a part.

We tend to trust people that we find friendly, whatever their real intentions.

Among our brain chemicals, oxytocine can fuel positive feelings
towards
other people, and if no precautions are applied, can
entail gullibility and clanism.

Can trust be ...trusted?

 Feel euphorical, ravished ?

OK, enjoy, make the most of it ! And beware !

Trust has positive aspects, but also its limitations

Trust is a needed component of human and
social relations
.

To rely on the counterpart, either a human being or
   organization,

plays a crucial part in business transactions, and
among them in lending
(etymologically, credit = confidence)
and investing.


Trust is a factor of economic / financial value.

For example a company stock value is based on a confidence
   *
about the general economic future
   * on the
qualities and prospects attributed to the company

* in the veracity of the data available.

Such trust / confidence is important in economic matters.

Without it people hesitate to buy, invest, take initiative. The lack
of trust can reach money itself

But this reliance can become naive over-
optimism
, overconfidence, or other illusion
.

This happens in the case of bubbles (see that word), bringing an
inefficient allocation of resources and a disastrous end of game.


Also, "caveat emptor" (buyer, beware).

A promissory note might be an illusory note!

Trust should not be "blind" and lead into gullibility or even
a full dependence and obedience.

Some suspicion seems advisable in some "nice" situations,

or with some "nice" people, to keep a rational approach
however 
pleased or even euphoric we feel.

See also "obedience to experts" and "deception".


In a nutshell, there are two kinds
of trust / confidence
: positive or illusory.

This two-faced sentiment works a bit
in the same way than optimism (see that word).

(*) To find those messages: reach that BF group and, once there,
      1) click "messages", 2) enter your query in "search archives".

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This page last update: 01/08/15            

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