A Spiral Model of Trust Evolution

Abstract

This paper studies the dynamics and evolution of trust as well as its intrinsic motivation and mechanisms and contributes to small business lending and trust literature by looking at a quantitative and endogenous perspective of trust evolution. A theoretical model of motivations and evolution of trust based on the notion of trust response and trust spiral is proposed in this paper. Three motivations driving the evolution of trust are identified, i.e. self-interest, reciprocity and altruism. Then this paper specifically focuses on trust within the lending relationship between bank and small business and run numerical simulations to further illustrate the evolution of involved mutual trust over time. Finally, implications for the motivation, development and evolution of trust within small business lending relationship and for the future research are proposed.