[Book Sip] Your Economic 'Choices' Are Made for These Reasons

Some sentences encapsulate the entire content of the book itself, while others instantly reach the reader's heart and create a point of connection with the book. We excerpt and introduce such meaningful sentences from the book. - Editor's note

This is a book about trust written by an economist. Economics and trust are quite closely related. Many parts of the modern economy, from currency and finance to the sharing economy and blockchain, rely on trust. The author reexamines the history of human civilization from the perspective of the expansion of trust. At the same time, he focuses on the ‘choices’ people make by considering pros and cons and weighing costs and benefits amid uncertainty.

Let us reflect on what kinds of trust operated at each stage until you received this book I wrote about trust. When you paid money, there was trust that the bookstore owner would not just take the money and run but would give you the book. If you purchased it online, there was trust that the bank accurately knows your balance or that Visa or Mastercard accurately assesses your creditworthiness and will transfer the appropriate amount to the bookstore owner’s account. There also had to be trust that the online bookstore would not misuse your account information. You probably did not think about this, but there was also underlying trust that the central bank issuing the currency would not devalue the money you used for payment.

_ pp. 212-213 (chapter 4. The Economics of Trust)

Economists broadly define all behaviors similar to those observed in trust game experiments as trust. In a broad sense, any game played in a situation where cooperation between parties can lead to better outcomes can be called a trust game. Situations requiring trust always involve inherent risk. The trustor opens up the possibility of cooperation by placing themselves in a risky situation. On the other hand, the trustee can either cooperate with or betray the trustor. If they cooperate, both benefit, but if they betray, the trustor suffers a loss while only the trustee benefits. Because the trustor knows such situations can occur, they do not initiate transactions first. Without trust, they do not put themselves in risky situations.

_ p. 234 (chapter 4. The Economics of Trust)

Many people think of the stock market as a huge casino. In other words, they see it as a game only for the wealthy that does little good for society. What happens in the stock market is not very different from what happens in a casino to some extent. All transactions are zero-sum, and if someone wins, someone else must lose. However, the financial sector accounts for 20 percent of the United States’ Gross Domestic Product (GDP). This means that one-fifth of all value created by the economy each year comes from the financial sector (including finance, insurance, and real estate). Of course, there are inefficiencies and corruption in finance. We also know that monopolies take unfair profits. But a significant portion of this 20 percent actually contributes to society’s prosperity. Taking a step back and looking at the early days when stock and bond trading first began helps us understand why finance is so important and why it accounts for one-fifth of the national economy.

_ pp. 277-278 (chapter 5. Modern Economy and Trust)

Trust | Written by Benjamin Ho | Translated by Jo Yongbin | HanbitBiz | 384 pages | 18,800 KRW

This content was produced with the assistance of AI translation services.