Trust Me if You Can

Imagine going to a street vendor to buy a soda, only to find that his fridge is locked. When you’ve persuaded the shopkeeper that you’re thirsty, you then end up arguing over whether you’re going to hand the money over first, or whether he is going to hand over the drink. Finally you manage to arrange an elaborate simultaneous exchange.

Trust

Being able to trust people might seem like a pleasant luxury, but economists are starting to believe that it’s rather more important than that. Trust might be result in being responsible for the difference between the richest countries and the poorest. “If you take a broad enough definition of trust, then it would explain basically all the difference between the per capita income of the United States and Somalia,” ventures Steve Knack, a senior economist at the World Bank who has been studying the economics of trust for over a decade. But above all, trust enables people to do business with each other. Doing business is what creates wealth.

Of course, as Mr. Knack admits, this loads a lot onto a short word. So it’s worth trying to get under the surface of trust in rich countries. Economists distinguish between the personal, informal trust that comes from being friendly with your neighbors and the impersonal, institutionalized trust that lets you give your credit card number out over the Internet. The two types of trust are correlated with each other, because we are more willing to trust people if we feel that, ultimately, we can call the police or get a fair hearing in court. “The reason why the U.S. is richer than Somalia is mostly not because of culture. The great thing about formal systems, when well designed, is that they make a little bit of public spirit, altruism or professionalism go a long way,” says Paul Seabright, an economics professor at the University of Toulouse.

Yet in a place like Somalia, personal trust is all that is available. It is a war-torn country in the horn of Africa, which lacks anything, we would recognize as a government, and entrepreneurs have to rely on much more local, primitive and less effective forms of trust. Somalis often rely on clans to settle disputes. That can work well if you’re arguing with someone from the same clan, but cross-clan disputes are often messy and unfairly resolved. “Factors which increase trust in society are not necessarily a good thing, because they can increase the bonds between gang members, whose main economic success comes from extorting or coercing other people,” explains Seabright. Trust can also be denied to ethnic minorities: the credit card companies may not be entirely blind to race, sex, color and creed.

Economists Kerwin Charles and Patrick Kline have tried to put their fingers on the arbitrariness of personalized trust by looking at car-pooling and race. They argue that car pooling is a good measure of trust: can you trust your fellow travelers not to be late, drive badly or murder you and leave your body in a ditch?

Meanwhile, experimental research by economists Ed Glaeser, David Laibson and Bruce Sacerdote shows that the way people trust each other simply isn’t fair. The researchers organized a “trust game.” Two students met ahead of time to size each other up socially, then they played the game. The first student could give up to fifteen dollars to the second student; the experimenters doubled the gift, and then the second student had to decide how much to give back. The game is a measure of trust because the first player has the power to double the size of the pie, but only at the risk of getting nothing back from the second player. What was striking is how much social factors such as race and status encouraged the second player to be trustworthy. “If the first player has a sexual partner, the second player will send back 17% more than they otherwise would have done,” observes David Laibson, a professor at Harvard. Since the second player doesn’t know about the existence of a boyfriend or girlfriend, Professor Laibson thinks that it’s a proxy for charm, status and social capacity. The second student will also send more money if the first student drinks more beer–suggesting sociability–or if he or she is of the same race. Pure status matters too. Students who have fathers with a college degree, or who don’t have to work to fund their studies, receive significantly more money

The main point for marketing based on trust, the so-called ‘collaborative economy’, is getting to a sort of major dilemma. It looks just fantastic and the video below (with the brilliant speaker Rachel Botsman) will explain the mechanism, the criteria and all the great things that it can bring to our business environment in terms of opportunities.

 

But again, trust is not equally distributed. We’re clear about that. So what do we move from this? Trust me, my friend. I can show you the way.

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