An Analysis of Trust and Trustworthiness Within Political and Banking Institutions

Maggie Lehr

Advisor: Kevin A McCabe, PhD, Department of Economics

Committee Members: Thomas Stratmann, Carlos Ramirez

Online Location, Online
June 23, 2021, 09:30 PM to 10:30 PM

Abstract:

This dissertation aims to investigate the role of trust and trustworthiness within civic and commercial institutions. This series of papers first creates a framework for how complex trust networks impact an agent’s belief system and how institutions drive how beliefs of trustworthiness translate into action. I then conduct a series of empirical and laboratory-based investigations which test features of this framework.

The first chapter uses empirical methods to understand how pre-pandemic trust levels affect US citizens’ beliefs and actions during the COVID-19 pandemic, such as vaccine hesitancy or belief in specific COVID-19-related conspiracy theories. We find that low pre- pandemic trust in a government agent or the mainstream media results in a reduction in their perceived credibility on COVID-19 messaging, even after applying controls, such as age and political affiliation. As a result, individuals with low government trust are less likely to engage in behavior consistent with preventative policies promoted by the government, such as mask use or vaccine willingness. They are also more likely to share COVID-19 information on their social media accounts and believe specific COVID-19-related conspiracy theories.

The second chapter utilizes a controlled experiment to study how a government leaders’ behavior affects constituent trust and how institutional protection from untrustworthy behavior impacts how beliefs on trust translate into trusting actions. This experiment also allows us to parse between different forms of trust constituents have in their government. We find that while signals of integrity of the leader impact initial perceptions or their trustworthiness, a leader’s competence in generating prosperity for their constituents has a more substantial effect on determining trusting behavior. Additionally, we find that while a wealth-promoting institutional design is sufficient to compensate for a less competent leader or a society with reduced trust in the leaders, it is not a necessary mechanism for propagating political trust.

Finally, my coauthors and I design a simplified lending experiment to see how imposing more substantial institutional protection affects willingness to lend and post collateral. Specifically, we look at the impact of implementing blockchain technology in peer-to-peer lending markets. Our experiment focuses on two key features from these technologies, collateral protection, and reduced collateral recovery costs. According to our findings, lenders infrequently seize collateral beyond contractual rates, even in environments without automatic collateral recovery. Moreover, lenders did not engage in illegitimate collateral seizures when the loan returns distribution favored the borrower. This experiment does not find that smart contracts provide an additional benefit over informal agreements in this environment and provides additional evidence that even unenforceable contracts prompt contractual adherence in a competitive environment.