What You Don't Know Won't Hurt You.

My colleague, Jason Aimone, has an interesting paper with Dan Houser on "betrayal aversion". Here's the abstract:

Trust promotes economic growth and development, and previous research has shed much light on reciprocity and other motives for trusting decisions. Why people choose not to trust has received substantially less attention, perhaps in part because not trusting is predicted by standard economic theory: selfish people consider the (perhaps subjective) stochastic nature of the environment and make the earnings-maximizing decision. This explanation is incomplete: we provide evidence from a laboratory analysis with an investment game that people’s decisions vary according to how an environment’s uncertainty will be resolved. In particular, if resolving uncertainty requires an investor to learn whether her trustee chose to betray then she is much less likely to trust. Our data thus provide evidence that “betrayal aversion” detrimentally affects propensities for trusting decisions. Our results also emphasize the importance of impersonal, institution-mediated exchange in promoting investment and economic efficiency.