Beside risk preferences, willingness to trust in others is one of the key requirements in economic transactions. A growing literature in economics deals with the question what factors determine an individual’s willingness to trust. Existing results highlight a strong and robust positive correlation between measures of cognitive abilities and trust measures. However, most of the existing literature only focuses on single country studies, or is only able to include proxies for cognitive ability. The present study applies data from the Programme for the International Assessment of Adult Competencies (PIAAC) including survey measures of trust for 30 countries around the world. In addition, PIAAC contains comprehensive measures of cognitive abilities in three domains, numerical skills, literacy skills, and problem solving skills. The results show, that the average level of trust varies substantially among the analyzed countries with the Scandinavian countries ranked at the top of the scale. The evidence supports a positive correlation between trust and cognitive abilities over all countries. This result is robust to including country fixed effects or controlling for country characteristics. However, the strength of this relationship varies substantially between countries.
Including measures of democracy in the respective countries shows that the strength of the relationship between trust and cognitive skills increases with the level of democracy in a society. In the second part of the paper, based on PIAAC-L – a longitudinal extension of the German PIAAC data – German reunification is used as a natural experiment to analyze the effect of democracy in a setting that allows for a more causal interpretation. The results support the finding of a positive effect of democracy on the relationship between trust and cognitive ability.