Why should my group trust yours? Collective trust and trustworthiness under Economic Shocks

While trust remains pivotal for economic growth in any society, its consistency over time is not guaranteed. External shocks such as economic crises or natural disasters can disrupt group trust dynamics. Through a laboratory experiment, this study examines the effects of random negative economic shocks on economic relations characterized by having a group of trustors and a group of trustees. The results indicate that such shocks decrease collective trust between groups due to two main factors: firstly, a decline in the trustor’s perceived trustworthiness of trustees; and secondly, a tendency for trustors to rely on the contributions of other trustors, leading to free-riding behavior. Furthermore, the experiment reveals that groups become less trustworthy following the shock, as trustees prioritize recovering economic gains from trust relations. This decline in collective trustworthiness is driven by diminished trustee’s beliefs in the trustworthiness of other trustees and trustees’ enforcing what they consider socially appropriate to do: return less after the shock.