If we’re all going to cooperate on everything, trust is a limiting factor

Warwick Business School
Jan 14 · 9 min read
Photo by You X Ventures on Unsplash

The sharing economy sounds like an attractive idea, with its promise of more convenient access to services and products, at low cost.

With digital technology, the sharing economy brings billions of people together to interact and transact. This relatively new and rapidly growing corner of the digital universe is worth many trillions — $229 billion in China alone, according to The Economist.

Yet, while the sharing economy might be expected to be an unalloyed success story, accompanied by runaway growth and stellar media coverage, the reality is less straightforward.

Unfortunately for its proponents, the sharing economy is having something of a bumpy ride. Take Uber, for example. The ride-sharing firm has been mired in disputes across the globe, its CEO resigned in 2017 following investor pressure, and it posted a loss of a billion dollars in the quarter ending September 2018.

Other sharing economy firms have run into difficulties too. With ride-sharing firms, there have been reports of sexual assaults on passengers and inadequate driver background checks. Meanwhile ride-sharing drivers have gone to court to claim that they’re employees rather than contractors.

Home-sharing firms have tangled with municipal authorities over local laws restricting use of residential property for short-term rentals, as well as having to deal with stories of accommodation being used to host pop-up parties and brothels. The result is a trust-deficit — a lack of confidence that needs to be overcome if the full potential of the sharing economy is to be realised.

The sharing economy has led to the creation of some extremely highly valued technology businesses in a very short space of time (Airbnb was founded in 2008, Uber in 2009).

While there’s no universally agreed definition, one can think of the sharing economy as digitally-enabled, peer-to-peer exchange platforms for goods and services, that connect spare capacity with demand, or offer access-over-ownership by enabling renting, lending, re-selling or swapping.

While there may be some dispute about definitions, an essential, undeniable truth about the sharing economy is that its lifeblood is trust. Trust is the oil lubricating the engine of the sharing economy.

Without trust underpinning the confidence to engage in billions of sharing economy transactions every day, there is no sharing economy: no Airbnb, no Uber, no BlaBlaCar.

By trust I mean, at its most simplistic, our willingness to be exposed to the actions of someone else, person or business, in the expectation that they will behave in a way that we would want them to. Regardless of whether we are able to monitor or control their behaviour.

The concept of trust in a commercial context has evolved from family and community settings to an international, rules-based, globalised economy over centuries.

The world moved from person-to-person trading relationships based on interpersonal trust, backed by individual reputations and shared norms and behaviours, to institutional trust underwritten by governmental and political institutions, with enforceable rules and regulations, legally binding contracts and sophisticated dispute resolution systems.

However, the digital world has created a new dynamic. The ubiquitous nature of digital technologies allows billions of people from across the globe to interact and communicate in ways that were impossible just a few decades ago.

In the digital age, people are deluged with information and can access a bewildering variety of products and services. All this opportunity, though, is accompanied by risk.

The digital world is often portrayed as a lawless frontier land, with hackers and fraudsters at every turn. Media headlines, such as the Marriott International’s data breach involving the personal details of some half a billion customers, stories of initial coin offering scams, tales of identity theft and catfishing, or details of the latest malware that internet users must guard against, do little to dispel this impression.

The growing digitisation of the modern world creates an increasingly complex, anonymous and impersonal society that many perceive as unpredictable, uncertain, and even intimidating. We’re confronted with a much-expanded world, but full of strangers. In many countries and cultures, people are taught to mistrust strangers.

Yet sharing goods and services via digital technologies is based on the fundamental mechanism of strangers interacting in the digital sphere — even over large distances, or when they have never met in person before.

Hence the importance of trust in online, digitally mediated settings. Trust is a basis for co-operation and community. It is a foundation for the relationships we form, including business relationships, and the decisions we make about obtaining products and services in the marketplace.

Trust helps alleviate the uncertainty experienced in complex environments and mitigate the risk of ‘stranger danger’.

And if digital disruption has eroded trust mechanisms constructed over centuries, then trust must be re-established and regained, both interpersonal and institutional, in order to unlock the potential of the sharing economy.

When platform providers get it right, evidence suggests that the trust levels in sharing business models can be extremely high.

In an article published in IESE insight, together with co-authors Frédéric Mazzella, founder and CEO of BlaBlaCar, Verena Butt d’Espous, from BlaBlaCar, and Stern School of Business Professor Arun Sundararajan, I looked at the effect of the firm’s trust-building DREAMS framework.

BlaBlaCar is a platform that brokers empty car seats to passengers that want to travel long distances. It is highly reliant on members trusting each other.

Our research revealed that the users’ levels of trust in members with full profiles on BlaBlaCar were exceptionally high, and only marginally less than how much they trusted their friends and family. In fact, the levels of trust users afforded to colleagues and neighbours were far lower. Thus, we showed that the right application of digital trust cues can make users trust strangers more than their colleagues.

So how can platform providers begin to engender trust at these levels? One step they can take is to incorporate features likely to foster trust in their services.

My recently published work with Andrea Geissinger, of Örebro University, highlights the fact that platform providers can use various digital trust cues to build both interpersonal and institutional trust.

These cues can help reduce the ‘stranger danger bias’ and boost confidence in the sharing economy. They’re also likely to have a cumulative effect, so the more cues a sharing platform provides, the greater the trust created.

These cues help to reinforce trust-building dimensions such as ability, benevolence and integrity. They also relate to aspects of trust which focus on social relationships, and include factors such as shared values and calculative trust, which is based on rational calculations and economic considerations of whether or not to trust.

There are, for example, a number of digital cues that are more focused on providing reassurance about the transactional elements of the sharing services. Payment is one area, for example, where consumers often have concerns.

When a consumer buys an item in a store, regardless of how they pay, there are usually well-established protections governing that transaction and the consumer is often aware of their rights.

In the world of remote digital transaction there is less certainty. Service users may worry about paying a fee, then not getting the service promised or expected, and not having any recourse or means of obtaining a refund.

However, as the platform providers are often the facilitators of financial transactions across the platform, they can offer escrow services and other dispute resolution mechanisms to provide greater certainty and peace of mind.

Similarly, insurance cover is another area where platform providers can provide assurance. Understandably, reports of substantial damage to accommodation rented via home-sharing services, or of serious accidents involving ride-sharing vehicles, prompt questions about liability. Adequate communication of any relevant insurance covering sharing services can help reduce uncertainty about what happens in the event of loss or damage.

Trusting information is another problem area for sharing services. The ‘fake news’ phenomenon typifies the challenges around validation, verification, and trust, in a digital environment. Veracity is also a problem for the sharing economy. But while the news media is still struggling to find a remedy, platform providers can take steps to assure users that information, whether it’s user or service-provider information, is reliable and accurate.

They can, for example, use secure transaction processes that incorporate digitally-displayed certification or validation, as well as other authentication measures.

It’s also possible to involve trusted third parties, such as government institutions, trusted consumer and trade associations, and companies specialising in certification, in the validation process.

Other digital cues are more focused on the relationship-building between the participants in the sharing services. A good example is the extent to which platforms allow participants to provide information about themselves and the services they are offering.

Online services such as LinkedIn understand that personal information is an essential part of relationship building. It is no different in the sharing economy. Such personal information is likely to include details like a profile photo, career history, skills and experience, interests and other digital services that a person uses or belongs to.

Also important is the inclusion of relevant details about the goods and services involved, whether that is photos of the accommodation, the location of a parking space, or a description of a ride-sharing car.

Another trust-building element is the use of social capital via sharing economy platforms. In the digital world, social capital can be built up through connections to different online networks, through likes and other forms of online endorsements, and association with other well-regarded individuals and organisations.

Platforms can leverage the social capital accumulated by participants in their services. For example, they can allow participants the opportunity to display the endorsements they’ve received or their links to other networks and social media sites.

They can also use devices such as “trusted reviewer” and “respected member” to add authority to comments and views. Indeed, reputation building via ratings and reviews, as popularised by firms such as Amazon and eBay, is another way that platforms can effectively help construct a more trusted service environment.


Can Blockchain Help the Sharing Economy Build Trust?

It is also important to consider another new technology that has huge potential to transform the sharing economy, including the way trust-building is approached — blockchain.

Blockchain is the focus of some of my most recent work co-authored with Timm Teubner, at the Technical University of Berlin, and Antje Graul, at Utah State University.

Blockchain technology is most closely associated with cryptocurrencies, but has potential in many other applications. Its decentralised nature, ability to verify transactions automatically without the need for intermediary intervention, and use of smart contracts has the potential to offer participants in the sharing economy more powerful ways of establishing trust.

However, while blockchain technology offers untapped potential for platform providers, there are challenges to be overcome in raising awareness about this opportunity and promoting a link between blockchain and the sharing economy.

Furthermore, blockchain technology may be vulnerable to cyber-hacking (for example, the loss and theft of digital coins that have been reported in cryptocurrencies).

There have also been concerns about how compatible blockchains are with European data protection law, as once documented, data entries on typical blockchains cannot be altered.

Most users are not aware that blockchain requires substantial human intervention, for instance when writing smart contracts. Smart contracts offer transparency and security, and thus foster trust, once they’re written and implemented. However, it may be necessary to re-negotiate these contractual agreements, for instance when contracts need to be updated. Thus, users need to trust the decision-makers and designers of the blockchains.

So far, blockchain technology can only assure trusted transactions within the relatively narrow, technological framework of the engineering system of blockchains, but not beyond.

Further research is needed to investigate how, for example, blockchain and other trust mechanisms can be used together to further the interests of the sharing economy.

To date the platform providers, often operating on a global basis, have made the running with regard to shaping societal norms, rules and moral codes around their vision of the future. So far the results have been mixed.

Given the potential economic power and growth involved, it is questionable whether platforms should be the main arbiters for constructing the sharing economy universe and its rules.

It is crucial that civic society, governments, NGOs, regulators, and legislators, rise to the challenge of allowing the sharing economy to innovate and flourish.

Working together, and using a range of tools — frameworks such as those deployed by BlaBlaCar, digital cues, blockchain technology, or other trust promoting mechanisms — these stakeholders should be able to go a long way towards overcoming any current trust deficit and inspiring trust in the sharing economy.

In doing so they can fulfil the promise of the sharing economy as a way to use resources more efficiently, deliver environmental and economic benefits, and enable strangers across the globe to connect in confidence.


References

Möhlmann, M. and Geissinger, A. (2018), Trust in the Sharing Economy: Platform-Mediated Peer Trust. In Davidson, N., Infranca, J., Finck, M. (eds.) Cambridge Handbook on Law and Regulation of the Sharing Economy (2018). Cambridge University Press.

Möhlmann, M. (2016): Digital Trust and Peer-to-Peer Collaborative Consumption Platforms: A Mediation Analysis, available at http://ssrn.com/abstract=2813367.

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Warwick Business School, located in central England, is part of the University of Warwick and one of the world’s leading business schools

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