The Equation: Your Trust Is Driving the Financial Sector

If you ask critics of today’s US financial sector why it got so big, they might say “greed.” But research by Chicago Booth’s Robert W. Vishny, Universita Bocconi’s Nicola Gennaioli, and Harvard’s Andrei Shleifer suggests a better answer would be “trust.” The researchers postulate that many people, lacking the skills and knowledge to invest on their own, hire money managers they trust, which reduces their anxiety about taking investment risks. That would explain why stock-market participation in the United States has been rising, and the share of riskier assets in financial portfolios has been growing.