The emotional dimensions of contracting are often neglected in
economics. Players assume that their counterparts maintain a realistic
and stable sense of self-worth based on intimate knowledge of their own
strengths and weaknesses. Market participants are presumed to harbor
realistic expectations, commensurate with their skills and
accomplishments. Allowance is made for exaggeration, disinformation,
even outright deception - but these are supposed to be marginal
phenomena.
When trust breaks down - often the result of an external or internal
systemic shock - people react expectedly. The number of voluntary
interactions and transactions decreases sharply. With a collapsed
investment horizon, individuals and firms become corrupt in an effort
to shortcut their way into economic benefits, not knowing how long will
the system survive. Criminal activity increases.
People compensate with fantasies and grandiose delusions for their
growing sense of uncertainty, helplessness, and fears. This is a
self-reinforcing mechanism, a vicious cycle which results in
under-confidence and a fluctuating self esteem. They develop
psychological defence mechanisms.
Cognitive dissonance ("I really choose to be poor rather than
heartless"), pathological envy (seeks to deprive others and thus gain
emotional reward), rigidity ("I am like that, my family or ethnic group
has been like that for generations, there is nothing I can do"),
passive-aggressive behavior (obstructing the work flow, absenteeism,
stealing from the employer, adhering strictly to arcane regulations) -
are all reactions to a breakdown in one or more of the four
aforementioned types of trust.
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