Definition. Let us define trust for the purpose of our discussion. Trust as “believing that others tell the truth and keep their promises.” Trust can be risky if our belief is wrong; if trusted persons do not tell the truth and do not meet their promises. We exclude from the definition “gullibility”– unreasonable trusting and “faith”– believing unconditionally, usually as a matter of religion.

Importance. Trust is important. Advanced economies, and in fact, each of us cannot survive without relying on others, to a greater or lesser extent.

Costs and benefits. Trust can be efficient when the cost of verifying other people’s statements and reliability of their promises is higher than the benefit from the relationship. Thus, the cost of verifying the honesty of a money manager that controls my life’s savings may be higher than the benefit I can derive from his expertise. In such a case I would engage this money manager only if I trusted him. Trust is even more efficient when the cost of my money manager in convincing me of his trustworthiness is higher than the amount that he would receive for his services. In this situation the gap between us would be too great, and we will interact only on the basis of trust. The use of cell phones, television, and the Internet has introduced a habit of trusting ‘virtual people.’

Mobility and quick interactions among people blur the difference between friends and casual acquaintances. In the networking mentality of business circles, people often confuse exchanging business cards with time-tested relationships… People often assume that sharing the same occupation means sharing the same level of trustworthiness. These assumptions can be wrong. But it is too costly to check every person that one meets in conferences and business engagements.1

Trust facilitators. There are many private sector facilitators of trusting relationships. They verify and guarantee particular facts or actions of other people or organizations or situations. These facilitators include lawyers, accountants, advisers, commercial and investment bankers, rating agencies, and credit-card issuers.

There are organizations that check out and guarantee their own members’ trustworthiness, such as physicians, lawyers, accountants, investment bankers, and broker dealers. Some organizations are themselves regulated by government agencies (e.g., the New York Stock Exchange and the National Association of Securities Dealers, and the American bar Association). Banks and insurance companies are not as organized presumably because they are strictly regulated and trust in them is very strong.

Internet “verifiers” such as Verisign and eTrust establish trust. Reputation, which can establish trust, may arise by networking, publicity through independent sources (e.g., newspapers) rating by customers (e.g., eBay and public polls) and inquiries of friends and acquaintances. A trust-creating program is LinkedIn, where users guarantee specific persons for whom they vouch to people who do not know them. The law is a weaker guarantor of trustworthiness in the virtual world that in the real world.

The question: what other mechanisms can be established to create a trusting and trusted community in the virtual world?