“Do people believe that others are similarly, more, or less dishonest than they truly are? The accuracy of dishonesty beliefs is not only important for psychological knowledge, but also has implications for organizations and policymaking. In this paper, Study 1 presents a research program on moral decision-making comprising 31 different effects from 11 experiments, where participants could anonymously lie for personal gain. Crucially, participants were also asked to estimate what percentage of other people would lie in the same situation. An internal meta-analysis summarizing all belief-behavior comparisons revealed that people substantially overestimate others’ dishonest behavior (g = 0.61; k = 31; N = 8126), by 13.6 percentage points on average. This effect holds across study contexts and participants’ own behavior, and 63.5% of participants overestimated dishonesty by 5 percentage points or more (only 25.4% underestimated it). We then examined potential consequences of biased dishonesty beliefs in three pre-registered follow-up studies. Study 2 (N = 981) found that providing correct information about actual honesty levels enhanced general prosocial expectations (e.g., trustworthiness, fairness). Study 3 (N = 285) revealed that professional managers have pessimistic beliefs also about people’s real-world dishonesty (e.g., insurance fraud, workplace theft), and moral pessimism predicted greater support for freedom-restrictive countermeasures to reduce dishonesty (e.g., surveillance). Study 4 (N = 741) demonstrated that providing managers with correct information about actual honesty levels causally reduced their support for freedom-restrictive countermeasures. In conclusion, the pessimistic bias in dishonesty beliefs about others is robust, and it shapes prosocial expectations and policy preferences.”

From ScienceDirect.

Summary: Many people assume that markets breed dishonesty, but the opposite is true. Commerce depends on trust. Repeated exchange and reputation make honesty not just virtuous, but profitable. When trade is open and competition thrives, deceit is punished and integrity is rewarded. By contrast, heavy regulation invites corruption and favoritism. A truly commercial society, grounded in voluntary exchange and mutual accountability, is also a more honest and trustworthy one.

In my previous essays, I argued that a trade society is both a prosperous and trust-based society. Trust and trustworthiness in society revolve around norms of honesty. Dishonesty breeds distrust and frays the threads of our social fabric. Some may worry that dishonesty is the lifeblood of a commercial society: a system that runs on lies, with an every-man-for-himself attitude and shady opportunists around every corner. In fact, greater honesty is best achieved through reputational pressures and the mutual accountability that is fostered by frequent exchange; frequent exchange is enabled by the removal of corrupting restrictions.

In his Lectures on Jurisprudence, the Scottish economist Adam Smith described the commercial society in the following terms:

Whenever commerce is introduced into any country, probity and punctuality always accompany it . . . Of all the nations in Europe … the most commercial, are the most faithfull to their word … A dealer is afraid of losing his character, and is scrupulous in observing every engagement … When people seldom deal with one another, we find that they are somewhat disposed to cheat … When the greater part of people are merchants they always bring probity and punctuality into fashion, and these therefore are the principal virtues of a commercial nation.

In Smith’s view, fear of reputational damage and unemployment prevents fraud and dishonesty. He believed that success within a commercial society stems from “prudent, just, firm, and temperate conduct” and “almost always depends upon the favour and good opinion of … neighbours and equals; and without a tolerably regular conduct these can very seldom be obtained. The good old proverb, therefore, that honesty is the best policy, holds, in such situations, almost always perfectly true.” For Smith, the market in many ways makes us accountable to each other: repeated dealings and fear of reputational damage incentivize honest behavior. And plenty of empirical evidence supports his outlook.

Laboratory experiments demonstrate that trade teaches participants whom to trust and whom not to. Dishonest behavior is punished in the marketplace, providing an incentive for participants to be honest in their dealings. For example, one study found that adding market competition to the experiment reduced sellers’ over-diagnosis of high-quality treatment (when lower-quality would suffice) and increased buyer trust. Another experiment found that introducing market competition into one-off exchanges boosted trust and efficiency to match that of trading networks built on repeated interactions. Adding market competition and private reputation information in one experiment tripled trust and trustworthiness while increasing efficiency tenfold. By practicing honesty to protect their reputations, trade participants eventually internalize honesty as a habit.

Conversely, trade restrictions lead to greater dishonesty. For example, Transparency International’s Corruption Perceptions Index (CPI) measures the perceived levels of public sector corruption across numerous countries using multiple surveys of business people and country experts (Figure 1). Various studies that rely on the CPICPI have shown that a greater amount of international trade and foreign direct investment and low levels of state control of the economy curtail corruption. High levels of regulation—including regulation on trade—tend to be a strong predictor of corruption. Even seemingly small adjustments to trade procedures can make a difference. For example, the World Bank’s 2020 Doing Business report found that “economies that have adopted electronic means of compliance with regulatory requirements . . . experience a lower incidence of bribery.” That includes digital trade reforms such as electronic single-window systems, e-payments, paperless clearance, online certificate issuance, and more.

Figure 1. Corruption Perceptions Index scale

More recently, a 2023 study looked at firm-level data across 138 countries and confirmed that the imposition of more red tape in public services—such as import licenses—is associated with a greater tendency to pay bribes, particularly in nondemocratic countries. Similarly, a recent study found that India’s trade liberalization since the early 1990s, especially tariff reductions, significantly reduced the economic advantages of politically connected firms by decreasing their reliance on political favoritism. It appears that the friendlier a nation’s economy is to trade, the less corrupt it tends to be. Economic restrictions and regulations allow corruption to grow, instead of the economy. By reducing barriers, more trade is unleashed, which in turn promotes the “probity and punctuality” that Smith described.

When the level of economic freedom within countries is compared to their level of corruption, economically-free countries come out looking relatively clean. And the scores of the freest countries are more than twice as high as those of the least free countries (Figure 2). That’s because various aspects of economic freedom—including trade openness—are associated with less corruption. Freer trade makes reputation king, mitigating corrupt incentives and embedding honest norms throughout society.

Figure 2. Economic freedom and corruption

As a case in point, East Germany suffered under severe trade restrictions prior to the fall of the Berlin Wall. After testing randomly selected German citizens on their willingness to cheat at a die-rolling game, researchers found that those who had East German (communist) roots were significantly more likely to cheat compared to those with West German (capitalist) roots. It was also shown that the longer the person had exposure to communism and its trade barriers (i.e., those who were at least 20 years old when the Berlin Wall fell in 1989 compared to those who were only 10 years old), the greater their likelihood to cheat.

These findings are supported by the work of the Mercatus Center’s Virgil Storr and Ginny Choi, who discovered a significant difference in attitudes between members of nonmarket and market societies: More than double the number of nonmarket residents versus market residents believe that avoiding fares on public transport, cheating on taxes, and bribery are justifiable. Those from nonmarket societies are also more accepting of theft compared to those from market societies (Figure 3).

Figure 3. Market versus nonmarket societies on dishonest behavior

Follow-up studies by other researchers have drawn similar conclusions about market societies and honest behavior. For example, a 2023 study surveyed residents in both market and nonmarket societies on their attitudes toward claiming government benefits to which they are not entitled, avoiding fares on public transport, and cheating on taxes. After controlling for a number of variables, they found that those with greater exposure to markets were less likely to justify these dishonest actions. What’s more, individuals who preferred markets (“market thinking”) were also less likely to justify dishonesty. The researchers concluded that there is “a universal association between markets and morality” and “a robust association between an increase in market exposure and an increase in civic morality.”

Even within communist countries, research shows that the more trade-oriented areas tend to be the least corrupt. A study in China Economic Review employed the National Economic Research Institute (NERI) Index of Marketization, which measures five major fields of Chinese marketization with 23 indicators. Examining different provinces in China, the authors’ analysis found that deregulation and trade reduce corruption: a 1 percent increase in the marketization index leads to a 2.72 percent reduction in corruption. Regions that increased trade openness by 1 percent experienced a 0.35 percent reduction in corruption.

Overall, the evidence overwhelmingly suggests that open economies stifle the spread of corruption and reinforce honest habits through reputation-building exchange. The removal of trade barriers allows for more commerce to take place and, consequently, more reputations to be a stake—a powerful incentive to keep honorable reputations intact. The most enduring way to achieve this is through genuinely honest conduct. A commercial society is, at its core, a society of integrity: it limits the opportunities for corruption and encourages honest behavior in the process. The norms of commerce—Smith’s “probity and punctuality”—settle in like a kind of glue, helping to bind society together.

Summary: Human progress depends on understanding human nature to some degree. Our blended capacities for cooperation, competition, empathy, and aggression cannot necessarily be ignored or overwritten by social engineering. Sustainable progress arises when institutions and innovations work with our evolved psychology rather than against it, channeling our instincts toward creativity, cooperation, and flourishing.

“Nature versus nurture” is a debate older than the field of psychology itself. Are we born with fixed traits, or are we shaped entirely by our upbringing? Of course, this is a false dichotomy. Both genes and environment shape most psychological traits. The real question is not nature versus nurture, but how much each contributes to different outcomes.

This question matters deeply for thinking about human progress. Any attempts at improving the human condition must be compatible with human nature, or they will risk creating more problems—such as the collapse of communist and socialist economies, for example—than they solve. And understanding human nature means grappling with our biological constraints and evolutionary history. Progress for squirrels might mean a world devoid of natural predators, where every tree grows acorns year-round. But human progress is a distinctly human concept.

As a psychologist, I am interested in the psychological foundations of human progress. To understand and sustain human progress, we must first understand the nature of the humans who are progressing. Strangely, the beings most capable of reflecting on our own values are also the most skilled at obfuscating them, as my graduate advisor, Harvard University psychologist Steven Pinker, has explored at length in his books The Blank Slate and Rationality. Many influential thinkers throughout history have questioned or outright denied the concept of human nature. 

Superficially, that makes sense. Unlike some animals, which can walk and forage minutes after birth, human infants are born helpless and remain dependent on others for years. We are not born with language, and the languages we learn to speak depend entirely on the environment we were brought up in. As the English philosopher John Locke noted, all knowledge appears to come from experience, whether firsthand or taught by others. The human mind, at birth, is seemingly a true blank slate.

The blank-slate view was profoundly influential on the Enlightenment philosophy that set the stage for the miraculous forms of human progress in the coming centuries. If every baby starts out essentially the same, only advantaged or disadvantaged by their environment, then the case for equality becomes not just moral, but empirically necessary. It suggests that no one is born inherently superior, and that differences in status, intelligence, or virtue are all shaped by experience, not destiny. If all minds begin equally blank, then all individuals are capable of reason, learning, and democratic self-governance.

The idea that human nature was endlessly flexible fueled optimism, but it also began to cast blame on modern society. If we are all a product of our environments, then violence, poverty, and inequality were the results of a manipulated system. This philosophy was most famously embodied by the Enlightenment philosopher Jean-Jacques Rousseau, who believed that humans were born fundamentally good and were corrupted by society. In his view, the natural state of humanity was one of egalitarian peace, disrupted only by the emergence of social institutions that fostered competition and inequality.

The English philosopher Thomas Hobbes, in stark contrast, believed the default state of human life was solitary, poor, nasty, brutish, and short. For Hobbes, society constrained the worst of our innate impulses, and a strong legal system made crime more dangerous than cooperation. While Hobbes’s vision was often caricatured as bleak or authoritarian, modern psychology has increasingly validated his core insight. Humans are not born peaceful and rational, but possess a mix of impulses—some prosocial, others aggressive, impulsive, and self-serving. As the Canadian developmental psychologist Richard Tremblay has shown, the most aggressive humans are, in fact, toddlers. Although they cannot inflict real harm, most toddlers hit, steal, and lie as soon as they are capable. As all parents know, these innate antisocial behaviors must be patiently weaned out of children through healthy socialization and repeated instruction.

These two visions—Rousseau’s romanticism and Hobbes’s realism—have shaped centuries of thought about human nature and the role of institutions. One sees society as the source of our problems; the other sees it as the solution. Both, in their extremes, miss the full picture. We are born capable of both empathy and cruelty, cooperation and tribalism, innovation and superstition. Society both nurtures us and constrains us. Different aspects of different ideologies and institutions both facilitate and prevent human progress.

Institutions are not just abstract systems—they are extensions of human psychology. Their success or failure often hinges on how well they accommodate and channel our evolved tendencies. When institutions align with human nature, they can guide self-interest into cooperation, aggression into justice, and tribalism into civic identity. When they ignore it, they risk collapse, corruption, or unintended negative consequences.

Consider the market economy. At its best, it transforms individual ambition into mutual benefit. Entrepreneurs seek profit, but in doing so, they create goods, services, and jobs. This is not a triumph over human nature—it is a clever use of it. As the Scottish economist Adam Smith noted, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Contrast that with utopian communes that attempt to erase hierarchy, suppress competition, or eliminate private property. These experiments often fail because they ignore deep-seated human drives for status, autonomy, and reciprocity. When institutions deny these drives, they invite dysfunction.

Successful democracies are not built on the belief that humans are all born the same, but that our differences can complement each other, given sufficient freedom and equality before the law. Checks and balances, the rule of law, and free speech are not just moral principles, but safeguards against the psychological realities that humans are fallible, competitive, and prone to power-seeking. Progress is not achieved by transcending our psychology, but by building systems that align with our best impulses and constrain our worst.

Despite these self-evident truths, discussions of progress often neglect human nature in favor of nurture. Whether arguing for government intervention in the market, increased social welfare spending, or profound cultural change, advocates of such positions share a commitment to reshaping our environments. Yet even in identical environments, outcomes vary dramatically depending on psychological factors such as trust, optimism, gratitude, and self-control. These are not variables that can be socially engineered. Instead, they are traits that arise from genetic inheritance, individual beliefs, decisions, and cultivation of habits.

Even in this almost miraculous age of superabundance—characterized by unprecedented material wealth, a high degree of freedom, and technological sophistication—many people feel lost, cynical, and devoid of purpose. To improve people’s psychological outlook, a deep understanding of human nature is necessary. That consists of considering not only our environments but also human nature itself. Without that understanding, progress can lead to unintended, sometimes negative, consequences. Material abundance can breed obesity and lethargy; excess freedom can lead to decision paralysis; technological progress can erode attention spans and lead to addiction. History shows that we are not blank slates who can be remolded into something we are not.

My role at Human Progress will be to not just examine the psychological aspects of progress—mental health, optimism, rationality, cooperation, creativity, and productivity—but to understand how progress interfaces with human nature and leads to human flourishing. In the words of the American economist Thomas Sowell, there are no solutions, only trade-offs. Progress is a negotiation between our aspirations and our nature—between what we were built to be and what we hope to become. The most enduring advances come not from denying our instincts, but from designing systems that guide them toward constructive ends.

Summary: Many worry that markets, while efficient, corrode social trust and weaken community bonds. The evidence suggests the opposite: trade depends on trust, and commercial societies encourage people to extend trust beyond family and friends to strangers and colleagues. Experiments and cross-country studies show that economic freedom fosters cooperation, honesty, and reciprocity.

In my previous piece, I argued that a trade society generates prosperity, a widespread abundance of capital. But that raises another question: Does commercial exchange also lead to an abundance of social capital? While many may accept the economic efficiency of a market economy, they may see the trade-off as the fracturing of our social fabric and the deterioration of social capital.

But trade requires trusting attitudes and trustworthy behaviors to function properly, making a commercial society equivalent to a trust-based society. The American economist Ryan Murphy of the Bridwell Institute has distinguished between what he calls bonding social capital and bridging social capital. Bonding social capital refers to what increases the bond of affection with those in our inner circle, such as our family and friends. Bridging social capital refers to what builds social bridges, expanding our social network to those outside our inner circle. Too much bonding can interfere with bridge-building and can even burn bridges, creating a host of problems such as corruption and hostility toward out-groups. Trade acts as a social bridge. And a trade society is one full of social bridges.

Research from the Mercatus Center’s Virgil Henry Storr and Ginny Choi demonstrates the bridge-building capacities of market economies. They found that people in both market and nonmarket societies trust close family and neighbors. However, as social distance increases—from family and friends to neighbors or strangers—trust decreases. And yet, this decline in trust is slower in market societies. Compared with those in nonmarket societies, people in market societies are more likely to (at least somewhat) trust friends, colleagues, and even strangers. As Choi and Storr concluded, “People around the world seem to have equally strong core networks, but those living in market societies seem to have stronger periphery networks.”

Figure 1. Market versus nonmarket societies on trust

Other survey data support Storr and Choi’s findings and suggest that commercial societies produce trust. Utilizing data from the Economic Freedom of the World (EFW) index and the World Values Survey, researchers ran cross-country regressions with over 50 countries for the years 1995 and 2000. They found that economic freedom plays a significant and possibly causal role in the development of trust within countries. Even after controlling for variables such as urban population, age, human capital, government share of gross domestic product, political institutions, and inequality, countries with higher levels of economic freedom have been shown to have higher generalized trust than less free countries. But these trust levels are not fixed! Countries that experience pro-market reforms also see improvements in trust. 

Drawing on European survey data and the EFW index, Mercer University economist Antonio Saravia looked at the effects of economic freedom on generalized trust for the years 1980, 1985, 1990, and 1995. After implementing several controls, Saravia found that a 10 percent increase in economic freedom led to a 2.5 percent increase in generalized trust.

Figure 2. Economic freedom and generalized trust across countries

Figure 3. Economic freedom and trust in Europe

The evidence appears to indicate that market-based economic institutions have a positive effect on trust. However, one of the criticisms of the trust literature is that survey data and real-world behavior do not always match up. Contrary to expectations, people tend to be more trusting and trustworthy in experiments than survey answers, and laboratory experiments can give us a better sense of how economic institutions shape the trust-based behaviors of individuals.

The results of various laboratory experiments by Storr and Choi are telling. In studies published between 2018 and 2022, the two researchers demonstrate that in markets where cheating is possible, participants learn to reward trustworthy partners with greater trust and reciprocity (measured through token transfers). Those with positive market interactions received significantly more tokens than cheaters. What’s more, even strangers received more tokens than cheaters. In experiments where cheating was prevented or its effect neutralized, positive relationships were treated similarly to relationships between strangers. Storr and Choi stressed that participants knew nothing about each other and could not communicate beyond offers. That means the relationships were purely commercial, with no distortions stemming from race, sex, religion, or the like. In short, when corruption and dishonesty are absent from the marketplace, trust and equal treatment emerge. When dishonesty is a factor (as it is in the real world), trustworthiness is incentivized, and dishonesty is stigmatized. Positive market transactions breed trust and trustworthiness.

Figure 4. Trustor transfers by relationship type

Using similar trust games as the one featured in Storr and Choi’s study, other laboratory experiments primed random participants to unconsciously think about markets. The results indicate that a market mindset makes people more trusting of others. George Mason University economist Omar Al-Ubaydli and colleagues explain their findings:

Priming markets leaves people more optimistic about the trustworthiness of anonymous strangers and therefore increases trusting decisions and, in turn, social efficiency. . . . Absent markets, economic interactions with strangers tend to be negative. Market proliferation allows good things to happen when interacting with strangers, thus encouraging optimism and leading to more trusting behaviors. Participation in markets, rather than making people suspicious, makes people more likely to trust anonymous strangers. Our results seem therefore to corroborate the idea of doux commerce. [Italics in original.]

Another pair of economists selected internet business professionals from two cutthroat industries: domain trading and online adult entertainment. Multiple laboratory games between these internet professionals and Berkeley students yielded surprising results: The business professionals were more trustworthy, trusting, generous, and honest. As the study’s authors put it, “Internet business people were, on the whole, ‘nicer’ than students.” An earlier study performed similar experiments with company CEOs and students. Although CEOs are often caricatured as being greedy Gordon Gekko clones, they ended up being both more trusting and more trustworthy than students in the experiments.

The fact that the commercial society exists should be awe-inspiring. The absolute scale of trust and cooperation is incredible. But markets aren’t magical. They are spaces in which people engage in repeated trade, where individuals learn to consistently rely on and cooperate with each other. As people demonstrate a pattern of trustworthy behavior, exchange becomes more fluid, and trust becomes more concrete. Long-term success in the market depends partly on developing strong bonds of trust. And this practical necessity for economic success can eventually develop into a personal virtue.