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A vast literature has investigated the relationship between trust and aggregate economic performance. We investigate the relationship between individual trust and individual economic performance. We find that individual income is hump-shaped in a measure of intensity of trust beliefs available in the European Social Survey. We show that heterogeneity of trust beliefs in the population, coupled with the tendency of individuals to extrapolate beliefs about others from their own level of trustworthiness, could generate the non-monotonic relationship between trust and income. Highly trustworthy individuals think others are like them and tend to form beliefs that are too optimistic, causing them to assume too much social risk, to be cheated more often and ultimately perform less well than those who happen to have a trustworthiness level close to the mean of the population. On the other hand, the low-trustworthiness types form beliefs that are too conservative and thereby avoid being cheated, but give up profitable opportunities too often and, consequently, underperform. Our estimates imply that the cost of either excessive or too little trust is comparable to the income lost by foregoing college. Furthermore, we find that people who trust more are cheated more often by banks as well as when purchasing goods second hand, when relying on the services of a plumber or a mechanic and when buying food. We complement the survey evidence with experimental evidence showing that own trustworthiness and expectations of others' trustworthiness in a trust game are strongly correlated and that performance in the game is hump-shaped. -- Trust ; trustworthiness ; economic performance ; culture ; false consensus

AbstractTo investigate how group-contingent non-pecuniary preferences are affected when one group occupies a position of higher status than another group, experimental participants were divided into two trivially distinct groups and then one of the groups was randomly assigned "high status." Control sessions were also conducted in which no status distinction was introduced. In all sessions, participants subsequently played two games governed by distinct social norms: a trust game and a cheap talk game where lying was possible. In the control sessions, norm compliance was higher in same-group interactions, consistent with previous research demonstrating that normative obligations are often parochial. In treatment sessions, parochialism vanished and was replaced by noblesse oblige: members of high status groups exhibited more norm compliance in all of their interactions. Finally, in game roles not governed by an unambiguous social norm, identity had no direct impact on behavior. Considered together, the results suggest that the channel through which social identity directly impacts behavior is norm compliance and that the nature of this impact depends crucially on the relationship between involved groups.