Trust in the shadows: How loyalty fuels illicit economic transactions

A little trust can be a dangerous thing. Kmatta via Getty Images

When you think about economic activities that society tends to frown on – like offering bribes, paying for the services of a sex worker or even selling human organs – “trust” and “loyalty” might not be the first things that come to mind. But these seemingly positive characteristics play a key role in letting people disguise illicit transactions as something more socially acceptable, my colleague Gabriel Rossman and I recently found in a series of experiments.

As a professor of management who leads the University of Arizona’s Center for Trust Studies, I’ve long been interested in how people conceal illicit economic activity. One important way is through what scholars call “obfuscation” – hiding the true nature of an exchange to avoid social judgment or legal scrutiny. For example, a person who wants to hire a sex worker may disguise their payment as a more socially acceptable “gift,” while someone who wants to bribe a politician may instead make a “campaign contribution.”

Through our experiments, we investigated the strategies people use to mask morally questionable transactions – what researchers call “obfuscated disreputable exchanges.” We found that people decide to engage in these shady activities based on how much they trust the other person they’re working with.

In our experiments, we put 1,276 participants in the shoes of a real estate developer whose building permit application needs an exception to the zoning ordinance. Participants were then told that the city building inspector’s pickup truck had broken down, and that if they bought him a new one, he might be more inclined to grease the wheels for their application.

We found that participants were more likely to choose this option – an obfuscated exchange – instead of inaction or outright bribery when they believed they could trust their counterpart. We also found that the type of trust matters: When trust is based on belief in the other person’s loyalty, people are more willing to proceed with the gift. However, when trust stems from a belief in the other’s ethical standards, they hesitate, fearing the moral implications of their actions.

Why it matters

In the shadows of the legitimate market, a different kind of economy thrives – one dominated by the transfer of goods and services that society considers morally wrong. Our study probes this hidden economy, examining how individuals navigate transactions that are cloaked in moral ambiguity. In addition to helping us understand the mechanisms of these illicit exchanges, our work offers fundamental insights into human behavior and social norms.

Our findings point to a basic fact: People want to pursue their own self-interest while also being liked by others. When those two goals conflict, there’s a strong temptation to put up a false appearance of respectability. And trust plays a key role in making that happen.

One important implication of our research is that trust has a dark side. This runs contrary to the positive view of trust that many researchers have, thanks to its role in encouraging cooperation and reducing transaction costs. Our investigation shows that trust can also have effects that are less socially desirable – such as enabling bribery.

Trust can play conflicting roles because it has two fundamental dimensions: loyalty and ethics. Loyalty refers to someone’s goodwill and their desire to help, while ethics has to do with acceptable principles – notably rectitude and truthfulness – that a person subscribes to. Both play an important role in shaping whether people are viewed as trustworthy.

People often believe that loyalty and ethics go hand in hand. This makes some sense: If someone acts ethically toward their community, it’s reasonable to assume they would honor their commitments to an individual, too. However, this connection breaks down during disreputable exchanges. Our work shows that people are more willing to engage in shady business with those who demonstrate loyalty-based trustworthiness and less likely with those whose trustworthiness is grounded in a sense of ethics.

Another intriguing facet of our findings is that loyalty-based trustworthiness – as opposed to trustworthiness rooted in ethics – reduces moral discomfort, or the negative feelings associated with morally inappropriate action. Each party adjusts their sense of what it means to be good if they trust that the other won’t judge them for a bit of wickedness.

What still isn’t known

Our investigation opens up new avenues of inquiry about how trust works in morally gray markets. It raises questions about the fragility of trust in these contexts, the impact of changing social norms on what people consider morally acceptable, and the broader implications for our understanding of trust and morality in society.

As researchers continue to uncover the layers of trust that underpin the shadow economy, these questions invite us to reflect on how people negotiate the tension between personal gain and community moral standards – a dynamic that shapes not just hidden economies but the very fabric of society.

Oliver Schilke receives funding from the National Science Foundation (CAREER Award (943688).