Trust and Trustworthiness in Business

Abstract

Trust is a relatively complex psychological state that arises in relationships characterized by dependence and risk. It has both cognitive and emotional elements that can be linked to certain actions made by parties involved in exchange relationships. The relationships of interest include some level of uncertainty, both about the motives and future actions of other parties and about the potential outcomes of engaging in cooperative behavior with those parties. Each party involved in an exchange relationship has a certain propensity to trust, a baseline shaped by various factors including previous relationships. An individual’s propensity to trust is viewed to be relatively stable over time and is most important in the earliest stages of a relationship when a leap of faith is required to enter the relationship because firsthand evidence about the other party is scant. During a relationship, a party’s propensity to trust serves as a filter through which the other party’s actions are judged. A party’s trustworthiness is shaped by views on the degree to which the potential trustee has (a) an ability to fulfill its duties, (b) a sincere concern about the welfare of the trusting party and a willingness to sacrifice its own outcomes, and (c) a commitment to abide by prevailing ethical norms. The relative importance of each component—ability, benevolence, and integrity—is likely to change over the course of a relationship. Trust may exist between two individuals in a dyad, among several individuals in a work group, between an individual and a firm, and between one organization and another. The last of these categories has been described as interorganizational trust, an important component in the relationships between firms and their stakeholders. When trust exists between firms, formal governance mechanisms, such as contracts and monitoring systems, will be less necessary, reducing transaction costs in the relationship. At the interpersonal level, trust in a relationship has been tied to many positive outcomes, including greater sharing of more accurate information and more frequent displays of organizational citizenship behavior. It has also shown a connection to higher levels of job satisfaction, creativity, cooperation, and productivity. When trust in leaders is higher, subordinates’ intention to quit is lower.