Human trust is a strong belief that the interactions between two or more
people are based on reliability and truth. It is a straightforward concept but
is often a difficult one to measure. In this paper, we review trust from a
financial economic perspective, which involves financial transactions that
occur in various markets. These transactions are made by individuals on their
own behalf or as agents for other individuals or legal entities and are
typically abetted by appropriate financial markets and institutions. Our survey
covers more than 70 economic and finance journal articles and related
publications that, with a few notable exceptions, were published in the last 25
years. The studies show that, among other things, trust is positively related
to the completeness of financial contracts, increased participation in stock
markets, and acquisition of insurance. Study results on the interaction between
individuals and their financial advisors are mixed. Although some advisors may
provide helpful guidance, many are driven by their own self-interest, although
this may be mitigated by a close personal relationship between the two the
advisor and advisee. These findings give support to the belief that private and
public efforts should be made to increase financial literacy to help
individuals find an advisor they trust.
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