In Sharing We Trust

The Impact of Trust Issues on the American Economy

(Unsplash, 2016)

Nobel Prize laureate Kenneth Arrow once famously wrote that “virtually every commercial transaction has within itself an element of trust.” Economists widely agree that trust is an essential element in international economic development. Trust is a social lubricant essential to successful capitalism. Now, this critical social lubricant seems to be in low supply. As interpersonal trust continues to disintegrate, collaborative consumption, or a peer-to-peer sharing economy, is on the rise, which holds trust and reputation at the core of its very existence. America has entered a “trust recession,” but the ability of collaborative consumption marketplaces to use technology to build trust between strangers could offer a solution to this decline. 

Why is Trust So Important to our Economy?

Trust as an “economic primitive” — or fundamental feature of basic human exchanges or interactions — is well documented in behavioral economics. Trust fosters reciprocal behavior and cooperation, thus making economic performance and outcomes more efficient. It has been found that a 15 percentage point increase in trust can lead to a one percent increase in economic growth per year. Without sufficient trust, economic growth is extremely difficult to achieve. 

Much of the United States’ economic success can be ascribed to effective cooperation. The first large-scale corporations and early successes with the internet were, in part, successful due to the social success of Americans. In the early 19th century, “highly sociable Americans” were successful in creating some of the world’s first large-scale corporations because of their abilities to work together, collaborate, and bounce ideas off of one another. In order for effective cooperation, a high degree of trust is needed. Without this trust, many of these successes may not have been possible. Since so many successes in the United States can be attributed to cooperation and trust, the decline of trust among its people is concerning. What kind of opportunities and successes might this country miss out on because we do not trust each other? 

Why Don’t We Trust?

Our trust in each other has decreased, and we are quick to say that it is because people are simply less trustworthy than they once were. A Pew Research Poll shows that about half of Americans link the nationwide decline in interpersonal trust to the idea that people are simply “not as reliable as they used to be.” Low interpersonal trust isn’t exactly surprising: trust has declined in nearly every sector. Over the past decade, trust in the government, media, and organized religion have all fallen. In just one year, between 2021 and 2022, trust in every institution aside from organized labor fell at least two percentage points. Average confidence in all institutions fell to a new low of 27 percent. This distrust and suspicion in institutions has translated to distrust in fellow citizens. It appears that many attribute shrinking trust to a political climate that they believe is broken, and makes them feel suspicious of others’ ability to distinguish fact from fiction. It also may stem from our increasingly divided political culture or modern tendencies towards making fundamental attribution errors. 

In order to develop opinions and build trust in others, we, as humans, need to determine whether we believe someone to be competent and of good character. To do this, we need to communicate with others, and often. Over the past few decades, and heightened by the increase in remote work materialized by the public response to the pandemic, we communicate less and less often with our coworkers. In the 1970s, an MIT professor found that we are four times more likely to communicate with someone six feet away from us than someone 60 feet away from us. When we do not see and communicate with people in person, we miss out on reinforcing information that helps us to maintain and build trust. Simply put, people no longer have many of the tools that are essential in deciphering the trustworthiness of another person. 

Technology as a Solution

The rise of collaborative consumption further necessitates trust as an essential component of our economy. “Sharing” platforms, which are exemplified by platforms ranging from AirBnB to Etsy to SkillShare, rely on interpersonal trust at their very core – and they have been thriving. While interpersonal trust has faltered throughout the country, a marketplace that relies almost completely on peer-to-peer trust has grown. This is because these platforms share an ability to facilitate the creation of trust and personal relationships rather than empty transactions. 

AirBnB, for example, relies heavily on a review system to preserve the reputations of hosts. A high rating is one of the most important assets an AirBnB host can have. After all, very few will choose to stay in a rental that has low ratings. Furthermore, guests have their own set of reviews that hosts can look at to ensure that they will be dealing with a trustworthy guest. The opposite is also true; hosts and guests who have created negative experiences will receive lower ratings. From these rating systems, hosts can receive the title of SuperHost, and they can use their reputations to gauge rates, thus turning their reputation into a tangible asset. This way, trust and transparency is created between both guests and hosts. 

Through turning trust and reputation into something with real world value, collaborative consumption platforms like AirBnB restore trust in an environment where trust is low, and help people to create the personal relationships that are essential to the economic sphere. Using these sites as an example, perhaps we should look towards creating some sort of integrated reputation capital, making trustworthiness a concrete asset across different mediums and platforms. This way, we could have our own reputation data that would travel with us from community to community, and we would have a tangible gauge of trust in the scrupulousness of business transactions with others. This would not only help to restore interpersonal trust in the economic sphere, but could also encourage people to behave in ways that will leave them with a good reputation. 

Of course, this is not without major privacy and transparency questions to be answered. Overall, however, if we could collect our own personal reputation, we would have more control over it, and, henceforth, be able to extract real value from it. This may also seem like a huge task, but our online reputations are already created; this is more of a matter of consolidating them. 

Through a system that turns our online reputation into a real-life tangible asset, we can slowly help to rebuild the true, face-to-face trust that has been lost in business transactions and that is so essential to the success of our economy. 

In Closing

Over the years, suspicion has crept in and undermined the American economy, marking business transactions with distrust and making it increasingly difficult to establish confidence in business relationships. Simultaneously, collaborative consumption platforms have grown and flourished because of their ability to instill trust between peers. Going forward, we should follow the model that these platforms have thrived off of to help to restore trust throughout the economy.