Bounded Rationality, Value Systems and Time-inconsistency of Preferences as Rational Foundations for the Concept of Trust

Abstract:     
This paper intends to contribute to the (bounded rationality) foundations of trust, showing how the concept of trust is related to the basic hypothesis on the behavior of the two people involved. First, I briefly review some definitions of trust found in the literature, and attempt to establish the basic formal structure of situations potentially involving trust. Then, I examine simple settings where the very notion of trust is merely calculative and paradoxical. Next, I show how bounded rationality provides a reason for a concept of trust that goes beyond the calculative notion discussed before. Value systems provide a basis for trust on integrity, and intertemporal consistency of preferences provides a basis for trust on character. Finally, I relate the individualistic-rational approach to trust to the social and cultural approaches.

Keywords: Trust, Bounded Rationality, Value Systems, Behavioral Decision-Making

JEL Classifications: A12, D23, D64, D82, M21, M40, M46, Z10

Working Paper Series