We define trust as the subjective probability individuals attribute to the possibility of being cheated. This subjective probability is partly based on objective characteristics of the financial system (the quality of investor protection, its enforcement, etc.) that determine the likelihood of frauds such as Enron and Parmalat. But trust reflects also the subjective characteristics of the person trusting. Differences in educational background rooted in past history (Guiso, Sapienza, and Zingales (GSZ), 2004a) or in religious upbringing (GSZ, 2003) can create considerable differences in levels of trust across individuals, regions, and countries. This difference between subjective and objective beliefs can persist because learning about the true probability of.
