Arrow on Trust

The Importance of Trust to Arrow's Thesis

Trust and other special attributes of the physician-patient relationship have a prominent position in Kenneth Arrow's 1963 seminal article, something that I failed to appreciate until now. During prior readings of Arrow's tour de force, I focused, as most readers have, on the structural and institutional aspects of health care delivery (information asymmetries, licensure and medical education, nonprofit hospitals, etc.) and on the interplay between health insurance and different forms of market failure. As Arrow's title and primary exposition directed, I thought about the connection these special market and institutional features have with the phenomena of risk and uncertainty. However, I failed previously to appreciate the central role that trust plays in making the connection between uncertainty and these special features. Indeed, I am now tempted to think that the word trust could easily be substituted for uncertainty in the article's title and in many of its most important passages. Thus Arrow's principal claim could easily be restated to say that "virtually all the special features of this industry, in fact, stem from the prevalence of [trust]" (946). Because trust arises from vulnerability, and uncertainty is one major form of vulnerability, ¹ the psychological phenomenon of trust is just as important an adaptive response to the problematic aspects of health care delivery as is insurance. Most of the unique features of the medical marketplace, therefore, can be understood as enhancing or justifying the high level of trust that is needed in order to cope with the intense anxiety that results from uncertainty in the face of illness.

I came to this appreciation of trust only recently, as an outgrowth of my own interest in articulating a more empirically and psychologically grounded basis for thinking about issues of health care law and public policy, a perspective known as therapeutic jurisprudence (Hall working draft). This phenomenological viewpoint contrasts with the formalism of a more theoretically oriented perspective of the sort often taken by economists. It was exciting to rediscover that a foundational work in health economics can be informed by both perspectives.

The psychological and emotional realities of trust and illness bookend Arrow's more institutionally focused and theoretically informed economic analysis. Following his highly formal statement of the nature of the optimality gap problem, including various theorems and conceptual definitions from economic theory, Arrow begins the heart of his exposition with the following observation about the brute reality of illness: "The most obvious distinguishing characteristics of an individual's demand for medical services is that . . . [they] afford satisfaction only in the event of illness, a departure from the normal state of affairs" (948). Therefore, "the demand for medical services is associated, with considerable probability, with an assault on personal integrity" (949). Arrow could have made much more of the obvious yet profound impact of illness, ² but he chose to let this observation stand unadorned, as his fundamental starting point.

Arrow's next observation relates to trust: "The customer cannot test the product before consuming it, and there is an element of trust in the relation" (949). From the predicate of trust, Arrow rattles off a host of unique features, including ethical restrictions on physician behavior, fiduciary devotion to the patient's interest and abnegation of the physician's self-interest, minimization of financial motivation, lack of price competition, a "discriminatory" pricing structure that takes income into account, the nonprofit status of most hospitals, mandatory licensure and barriers to entry in the profession, and uniform adherence to a high professional standard of care (or, unwillingness to bargain for a lower standard of care). Arrow makes some of these connections at the outset of the main exposition and others at the end of the article. In his final words, Arrow reminds us that medical care transactions are more akin to "personal and especially family relationships" than they are to exchanges in "the...