In Money we Trust? Trust Repair and the Psychology of Financial Compensations

Abstract

Despite the importance of trust in economic relations, people often engage in behavior that may violate their interaction partner’s trust. Given that transgressions in economic relations often result in distributive harm for the victim (i.e. loss of economic resources), a common approach in these relations consists of the transgressor providing a financial compensation to the victim: if a customer has complaints about a product, he is reimbursed; when a company is being sued, it often tries to make a financial settlement with the victims. Strangely enough, the high prevalence of financial compensations as a restorative response contrasts sharply with how little is known about their effectiveness. Can financial compensations actually increase trust again and what are the factors that determine their effectiveness? By taking an experimental approach, this dissertation aims to provide some first, much needed empirical answers regarding the effectiveness of financial compensations in restoring trust. In this venture, it was not only studied how aspects of the compensation itself (e.g. size) determine their effectiveness, but also how specific characteristics of the violation, the victim and the transgressor impact victims’ reactions to a compensation. The findings of this dissertation show that even in economic relations, where violations have a clear, quantifiable distributive harm, the process of trust repair is not simply determined by the material, financial value of a compensation. Rather, this dissertation reveals how immaterial aspects such as intent in the violation, whether a compensation was imposed or voluntarily provided or whether or not an apology accompanied the compensation, are all crucial in determining the actual value that victims attach to a financial compensation