Decay of Trust Across Borders

Extracted 06SEP2011 from

3:19 PM Thursday September 1, 2011
by Pankaj Ghemawat

Our current problems stem, in part, from the special characteristics of finance, which as Keynes noted, is highly dependent on sentiment and, as Hyman Minsky emphasized, therefore particularly susceptible to crises. Their conclusions are corroborated not just by empirical experience but by experimental research on asset markets by Nobel Laureate Vernon Smith, among others.

Such problems are amplified in a cross-border context by decay of trust across borders and with distance described in my previous post, and exemplified by the data on Western Europeans trusting their own fellow citizens more than twice as much as citizens of other Western European countries and nearly four times as much as citizens of countries outside Western Europe...