TRUST AND THE RELIABILITY OF EXPECTATIONS

Abstract

This paper discusses both `parametric trust situations' and `strategic trust situations' with expectation-based strategies and (limited) forecasting ability of the trustor, which is a way of modeling some basic ideas of `bounded rationality' from a rational-choice perspective. The analysis concentrates on one-shot, `non-embedded' situations. This is not to deny the importance of iteration and embeddedness. However, both for theoretical and practical reasons this `limiting' case deserves special attention. The analysis demonstrates how actors with less than perfect forecasting ability may be able to overcome the inherent dilemma of a trust relation. In the short run, an actor may decide to raise his forecasting ability by increased but costly attention, but in the medium run it can only be improved by learning processes.