Table of Contents

Neuroeconomics and the Firm

Neuroeconomics and the Firm

Edited by Angela A. Stanton, Mellani Day and Isabell M. Welpe

The ideal firm has been studied over several centuries, yet little is known about what makes one successful and another fail. This pioneering book brings together leading researchers investigating the concept of the firm from a neuroscientific perspective.

Chapter 4: Using Brains to Create Trust: A Manager’s Toolbox

Paul J. Zak and Amos Nadler

Subjects: business and management, entrepreneurship, strategic management, economics and finance, behavioural and experimental economics, economic psychology


Paul J. Zak and Amos Nadler WHY TRUST IS ESSENTIAL In 2009 people’s trust in US businesses fell to 38 percent from 58 percent a year earlier, the lowest level since records have been kept (Edelman Trust Barometer, 2009). And the bigger the business, the lower the trust. Perhaps this is unsurprising as monthly layoffs are comparable to Super Bowl attendance and consumers are hoarding their money like thirsty wanderers in the dry economic desert. Egregious institutional and individual indiscretions have marred the business landscape, prompting the frequent use of the word ‘crisis’. While politicians design the next multibillion dollar ‘bailout’ plan, managers of belt-tightening organizations have a more immediate problem: how to maintain employee motivation when pink slips are flying, and at the same time how to sustain customer loyalty. Distrust undercuts effective management because when trust is low, employees are less likely to understand and react to a manager’s goals. In 2009 60 percent of employees reported that they needed to hear information three to five times before believing it. Equally worrisome, only 17 percent of employees in 2009 trusted statements made by a CEO (ibid.). Without trust, organizational goals will literally fall on deaf ears. At the same time, economic downturns are precisely when managers have more latitude to make organizational changes in order to staunch hemorrhaging profits. An additional concern is that reductions in trust often occur outside a manager’s awareness, pulling down productivity. This hidden effect can diminish a manger’s effectiveness over time. For this...

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