I am still slightly taken aback by the realization we made in class today. Before taking this class, I had never thought of trust and integrity as more than a virtues or morals that one simply “ought to” possess. After taking this class and looking at trust and integrity through an economic viewpoint, it is bewildering to look at both qualities, not only as aids to harmony and general well-being, but as essential tools to efficient trade and exchange amongst traders. Today’s discussion brought up the point that if every transaction were a “one-shot” transaction, there would be no trust and reciprocity in the market. No trader would have incentive to follow through on his or her promises or deals. Consequently, no trader would trust another because he or she would know about the other’s disincentive to reciprocate his or her end of a deal. It is only because we develop relations with those whom we trade with that we use trust and integrity as tools to ensure that these transactions and exchanges are as efficient and successful as possible. It almost crushes the utopian part of my mind that wants to believe that people are trusting and trustworthy simply for the sake of being so. In reality, however, the truth is that we live in a society of people and bodies that are constantly exchanging and trading with each other. Therefore, trust is almost an “innate” quality within our society because of the economic and social condition in which it exists. We rarely face “one-shot” deals, and that is why we do value trust and integrity as much as we do.
Economic relationships in the trading market rely on trust and integrity in order for deals to flow and become solidified in the market. Deals and transactions are only completed when those who are trusted prove themselves worthy by reciprocating their end of the transaction. If trading bodies do not establish trust between each other, there is no trade made between them, which puts that part of the economy at a standstill or gridlock.
The idea of trust being a tool for economic transactions can be expanded to include the idea that trust is a tool for social and personal “transactions,” better known as relationships, among individuals. Trust is built between two (or many) individuals because of the anticipation of future interactions with each other. Each person honors the other’s trust because each wants someone he or she can rely on, confide in, or depend on in the future. This is not to say that I agree entirely with the argument that says that there is no such thing as true altruism. We live in a complex world, and I find it hard to believe that no one is ever capable of finding an action that is truly altruistic. It is certainly possible, even if it may be rare and debatable. In most cases, however, trust and integrity are the building blocks of substantial and long-lasting relationships. One-shot games do not build relationships. Exchange of confidence, emotion, stories and even belongings- all blanketed by trust, are what build relationships among humans. It may sound cynical at first to claim that trust only exists because of our interest to form relationships that benefit us in the future. When looked at realistically, though, it makes sense that this is the only way that trust comes about. We are social creatures, whether it is in regards to economic transaction or social interaction. For both to be possible, trust must inevitably be used to secure their presence in our lives.
6 comments:
First of all, I found your post to be rather interesting, especially when you mentioned that, “economic relationships in the trading market rely on trust and integrity in order for deals to flow and become solidified in the market.” I agree with the fact that if economic transactions were “one-shot” deals, it would be rare to find people that would value trust and integrity. We see this in the exchange markets when a trader buys bonds. For instance, if a trader were to buy a bond as a one time only transaction, it would seem that perhaps the trader would not value trust as much. On the other hand, we find that trading in the exchange markets are definitely not “one-shot” deals thus traders must develop a reputation. As Anna Bernasek tells us in The Economics of Integrity, “reputation and trust is sort of an entry requirement in the market.” It is interesting to know that whether a trader knew that he/she was going to loose a lot of money, they would still proceeded with the transaction because keeping ones word in this situation seems to be a powerful means for establishing trust.
In addition, it caught my attention when you stated the following. “Trust is built between two (or many) individuals because of the anticipation of future interactions with each other.” During the 2008 financial meltdown, the heads of large financial institutions not only took unreasonable risks, but also imprudent risks that failed to deliver “long-term value to their clients.” Perhaps part of their financial decisions were in part driven by their emotions, but what’s interesting to note is this notion of greed that led these leaders to take on even greater risks. It seems that their avarice got in the way of building trust with their clients. I am not sure if the heads of these large banks were anticipating future transactions with their clients, and even if they were it seems that they didn’t have a personal relationship with their clients. However, I agree that trust is built especially when you anticipate future business transactions with that same person.
Moreover, it’s fascinating to know that a large banking firm like Goldman Sachs, for example, emphasizes the importance of integrity and trust, which is also part of their corporate culture. Goldman is all about developing and maintaining a reputation. The question is how much of this integrity and trust is really practiced? I’m not sure, but “it’s hard to imagine that the banks truly believed the risky-mortgage-related products they were selling delivered lasting value to their clients,” as Bernasek claims.
I completely agree with your comments regarding trust and integrity as more than moral virtues. It's interesting to look at the range of trust and integrity that humans possess and how it affects their decision making process--our experiment this past week demonstrated that, as well. I found myself many times handing over large amounts of 'red' or 'blue' items and wondering whether or not the other user would reciprocate the favor and go through with our trade (they always did--and it perfectly demonstrates how trust and exposing oneself to potential weakness are done in day to day life and decisions.)
..if every transaction were a “one-shot” transaction, there would be no trust and reciprocity in the market. "
I agree that this is the conclusion that's often drawn, but I still don't believe that this is true. There may not be trust/reciprocity in the standard sense, but it doesn't mean that we'll rob each other blind or completely take advantage of the other. Even in times where we have ultimate control of the decisions (like in 'Dictator' games), individuals rarely decide to completely outstrip their partner of all utility--why this happens (our conscience?) and how much it varies from person to person is pretty controversial, but interesting to discuss. However, the point of this may be smaller than many people anticipate, because, as you write, We rarely face “one-shot” deals, and that is why we do value trust and integrity as much as we do. In the real world, our relationships and exchanges with others are so multifaceted and complex that it's difficult to draw conclusive behavioral patterns from these experiments and apply them to real scenarios.
The discussion of trust, and how it plays such a large underlying role in our exchanges, always pulls me back to the relationships we have those closest to us; namely, our family. How after building up so many years of experiences together (you could argue we've accumulated 'capital' in that time--the knowledge of each other's lives and behaviors), our level of trust and confidence in the other often completely exceeds any 'rational' expectation.
I've never really actually thought about correlating economics with values such as integrity and trust before- interesting post. I, too, have always thought of those two virtues as attributes that a person really "ought to" have.
It is only because we develop relations with those whom we trade with that we use trust and integrity as tools to ensure that these transactions and exchanges are as efficient and successful as possible.
When you stated that, it became blatantly obvious to me that trust and integrity are indeed the building blocks or foundation of relationships between partners; thus, those morals are extremely beneficial to deals and transactions not just between personal life. It's like the economics of integrity focuses on trust. I mean, I'm sure if you take aside a few people on the street and ask them what's good about having integrity and trust, they most likely would say lines along that they foster good behavior and make you a better person and example in society. But now I'm sure you'd agree with me that it's also good for trade and business, but I would add one more factor in this equation.
So, right now I'd say we have:
Trust + Integrity = Good flow of Business
I want to add:
Trust + integrity = wealth/success = good AND successful flow of business.
To put it into live play:
A company claims their item is dependable and worth the price - [INTEGRITY (if the company tells the truth and their words are reliable)]
- Customers buy the items and are happy with the consistency and truth of the company's advertising (TRUST)
- More money for the company means more incentive for them to act still with integrity
If they stopped, they would lose their clients.
Let's take Toyota for example. For years they have been one of the most reliable and dependable automobile services, but up until their recent recall and security flaws, their rating with society has dropped down immensely. Having bought one of the new car models that Toyota was having issues with, I thoroughly remember watching the news and feeling anxious every time I hit the road. It was such a relief for me to finally get a recall letter. Anyways, I remembered regretting ever buying a car from them and also feeling like the news was all over the place. There would be statements from Toyota representatives saying the problem was diagnosed and will/can be fixed and then more car incidents were showing on the news regarding brake failures.
Whether or not they were covering how serious the problems were, the public still felt unsafe and insecure as though the trust of consistency was broken.
Basically, it can easily be seem how trust and integrity are and should be the foundations of economics.
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