The Foundations of the Concept of Trust Under Bounded Rationality: Competence, Values Systems, Unselfishness and the Development of Virtue

Abstract

This paper intends to analyze the foundations of trust in a context of bounded rationality. Building on previous work, we show how bounded rationality provides a rationale for the concept of trust that goes beyond the common calculative notion. We show that there are four types of trust and that people assess probabilities (with some fuzziness, in the context of bounded rationality) in order to determine whether to trust a recipient, depending on each of the four. We follow previous work, mainly by Mayer, Davis and Schoorman (1995) and show how bounded rationality provides additional arguments to show how competence (similar to ability), value systems (similar to integrity) and unselfishness (similar to benevolence) are necessary to underpin trust. We establish the parallel between the three aspects of trustworthiness that appear in their previous work, but we add additional explanations focused on bounded rationality. We also go one step further to consider the development of virtue as a crucial fourth aspect, which also supports the argument that trust can be reinforced between people and developed through time.

Keywords: Trust, Bounded Rationality, Value Systems, Behavioral decision-making

JEL Classification: D23, D64, Z13