Rumour has it: Modelling credibility, reputation and franchise risk

Abstract

For most institutions it takes years to acquire a good reputation and recognition, but it can take a single adverse event to destroy a firm's reputation and franchise value completely and put the institution out of business. In financial matters, as in any other aspects of life, people can have a variety of degrees of trust in the information they receive, which affects the probability they assign to uncertain events and how they perceive credibility and reputation. Here the authors focus primarily on credibility using a probabilistic behavioural approach that quantifies investors’ and customers’ trust in a given firm.