Trustworthiness & creditworthiness

June 7, 2006

Confused is mulling over trust and confidence. For me, Harris captures this distinction perfectly for financial markets. I quote…

"People are trustworthy if they try to do what they say they will do. People are creditworthy if they can do what they say they will do. Since people often will not or cannot do what they promise, market institutions must be designed to effectively and inexpensively enforce contracts. Pay close attention to the mechanisms which ensure that traders will settle their trades. Attempts to solve trustworthiness and creditworthiness problems explain much of the structure of market institutions."

One of the functions of brokers in financial markets is to resolve trust and credit issues. The ebay reputation system addresses trustworthiness, but not creditworthiness, which is a big outstanding issue for any new market model.


One Response to “Trustworthiness & creditworthiness”

  1. […] Coding The Markets, via a comment on one of my recent posts, pointed me at Larry Harris’s book and associated website called Trading And Exchanges. As expected I’ve ordered the book and look forward to reading it. […]

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