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Trust is a key constituent of any kind of interpersonal relationships in economic, social and political contexts. Ben-Ner and Halldorsson (2010) define trust as the inclination of Person A to believe that other persons “B” who are involved with a certain action will cooperate for A’s benefit and will not take advantage of A if an opportunity to do so arises.” Arrow (1972) argued that “every commercial transaction has within itself an element of trust” and that the lack of trust can explain “much of the economic backwardness in the world”. Convincing empirical evidence on the correlation between trust and economic development is reviewed by Algar and Cahuc (2014) in a comprehensive survey of the relationships between trust and economic performance in several environments. Trust towards people depends both on economic and cultural institutions and on subjective characteristics of the individuals. Cultural factors impact on the level of trust by contributing to the broader concept of “social capital,” i.e. elements of social organizations which facilitate the coordinated action of individuals thereby improving the efficiency of the society as a whole (Putnam, 1993).
Trust is also relevant in settings perceived as highly complex and where an individual’s decisions rely on services provided by professionals such as, for example, doctors or attorneys. Financial markets are indeed characterized by a variety of increasingly complex and opaque products where investors may seek advice from professionals and where trust may work as simple “heuristics” in financial decision making (Bruhn, 2019). Furthermore, trust plays an important role in financial markets because many operations involve future payments and take place under the assumptions that debtors can be trusted given that contracts cannot be underwritten for all possible states of the world.
Guiso (2012) points out that recent severe frauds have played a role in the documented fall in trust in financial institutions and banks after the Great Recession. Cruijsen, de Haan and Jansen (2016) find that a personal history of perceived financial advisers’ misconduct reduces both trust in banks and general trust towards people. Guiso, Sapienza, and Zingales (2008) argue that the decision to invest in risky assets also depends on the beliefs on the trustworthiness of the system which, in turn, rests both on the objective institutional features of the environment and on the subjective characteristics of the decision maker.
It is well established in the empirical literature on household portfolios that participation in financial markets is much lower than predicted by standard portfolio theory. Age, education, the stock of wealth and household income play a fundamental role as socio-economic determinants of participation and holdings of risky assets (see Guiso and Jappelli, 2000, for the role of education and wealth in the Italian context, and Guiso and Sodini, 2013, for a general review). Christelis, Georgarakos, and Haliassos (2013) provide evidence that, in addition to the individual level characteristics, factors related to economic and cultural dimensions are also important for participation and that the different behavior across US and European countries is largely due to the different cultural and institutional environments faced by households. Further, several behavioral factors have been found to have power to explain participation in financial markets such as, for instance, optimism (Puri and Robinson, 2007), cognitive skills (Grinblatt, Kelohariu, and Linnainmaa, 2010), political orientation (Kausta and Trostile, 2011), bequest motives and sociability (Georgarakos and Pasini, 2011).