Tim Harford takes us on a tour of trust, which turns out to be one of the most valuable side effects of social norms. Some economists believe that trust – defined broadly – fully explains the difference between per capita income across countries. The implication is that 99.5% of our economic output is due to trust, with the remaining 0.5% due to hard work. (I don’t know where alimony fits into that equation.)
Trust operates in all sorts of ways, from saving money that would have to be spent on security to improving the functioning of the political system. But above all, trust enables people to do business with each other. Doing business is what creates wealth.
Center for Cost-Effective Consumerism board member David Laibson makes an appearance as well, describing a laboratory experiment in which trust increases based on some simple social cues (e.g., having a partner).
Tags: Behavioral Economics, Cooperation, Laibson, Social Norms
