The market as a process for the discovery of whom not to trust
Originally published in The Journal of Institutional Economics
Trust is an important component of all successful commercial exchanges. Indeed, there is now a considerable literature on the economic importance of trust as well as the relationship between trust and institutions. Although there is now a sizeable literature on the economic importance of trust, and on the institutions that are associated with higher levels of trust, this literature remains relatively silent on the potential of markets to generate trust and, more specifically, how market actors discover whom to trust and, perhaps more importantly, whom not to trust. In this paper, we build on research by market process theorists that understands the market as a discovery process. We argue that the market is also a discovery process through which market participants acquire knowledge about their trading partners' dispositions, moral priorities, and personalities. Specifically, we argue that the market facilitates the identification of trustworthy and untrustworthy individuals and is, thus, a process for the discovery of whom to trust and whom not to trust. Additionally, we report experimental evidence that suggests that although market participants are trusting of strangers (at least in our experimental setting), they are less trusting of trading partners who have proven to be untrustworthy in past dealings.