Open-outcry exchange trust depends on exclusion and threat of refusal, not enforceable contracts
Evidence
Contracts involving large sums are entered into on the basis of verbal agreement or hand signals. Although there are systems for the written, and now computerized, recording of contracts, each participant enters details separately, when prices may move substantially in seconds. Misunderstandings and mistakes (“outtrades”) are not unusual, and opportunism is obviously possible. Outtrades often have to be settled on a rough-justice, split-the-differencebasis: to discover what “really” has been agreed upon in the tumult of a pit is normally impossible. Widespread opportunism would render open-outcry trading infeasible, but a simple sanction is available: refusal to trade further with an offender. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 78
Categorization
- XREF: Directly parallels the law-merchant and diamond-bourse material: reputation plus exclusion substitute for enforceable contracts in dense trading communities. — connects to: The threat of ending an exchange is what enforces trustworthiness; Trustworthiness enforced only by contract threats is not genuine trust; Openly contrived sanction-based interdependencies work against the climate of trust — Niklas Luhmann, Trust and Power, 179 (+1 more)
Related
- Openly contrived sanction-based interdependencies work against the climate of trust (similarity 0.80)
- Handshake contracts shift enforcement costs onto reputation bonds. (similarity 0.79)
Broader Connections
- The threat of ending an exchange is what enforces trustworthiness
#corroborates(0.95) - Trustworthiness enforced only by contract threats is not genuine trust
#qualifies(0.85) - Openly contrived sanction-based interdependencies work against the climate of trust
#corroborates(0.80) — Niklas Luhmann, Trust and Power, 179 - A continuing relationship functions as a bond deterring dishonest trading
#complicates(0.75)