Trust and Startups

Evolution of Trust http://ncase.me/trust/ I recently played this game. Very interesting game.

(This is not a sector note or a deep analysis, just a dump of some philosophical thoughts on a topic that I like)

Some thoughts on Trust and Startups:

1) Repeat interactions increases trust: There was no incentive for an auto driver / taxi driver to be co-operative with me because he knew it would be its his first and last transaction with me. But with Ola/Uber in place, the transaction is repeated between me and Ola/Uber, and between the driver and Ola/Uber. Hence creating an incentive for everyone to behave. Note that with barbers, laundry men, vegetable vendors, etc., because there is already a repeat behaviour for customers in these transactions, the parties are incentivised to behave. But this problem continues to exist for wedding planners, birthday planners, plumbers, etc and JustDial/UrbanClap is attempting to solve that problem — by creating a layer of trust.

2) Mis-trust increases the cost of transaction: What if I am selling you a car, or a close friend of yours is selling you a car. You would be able to close the transaction with the friend faster than you would with me because you trust that the car will not have replaced parts. However, as a result of mis-trust, you go through multiple sellers, inspect, negotiate, etc — and this increases the cost of transaction. Of course, in the friend’s case, there is cost of illiquidity. I built a friend-of-friend network (tomo-no-tomo — friend of friend in Japanese) 4 years back. The premise being, its easier to transact (buy-sell, date, refer) with a friend-of-friend as the cost of transaction is reduced. So in such cases — date, refer, hire, etc — I hypothesise that friend-of-friend networks would be better than classifieds.

3) It pays to be good/co-operative (as an investor, entrepreneur, colleague): The game advises you to live and let-live (“copycat” — per the terminology in the game) over being good/cheat. I would argue that in general, if you are good (“always co-operative” — per the terminology in the game), you might have short term set backs and some people might take advantage of you. But in the long run, some good folks will be able to survive, just by pure randomness, and will build a reputation. Based on that reputation, they will be able to attract the other good people towards them, and they will win together. Note that the game does not account for the reputation aspect and the eventual aggregation of good people together. I would argue, that if those parameters are also included, agree that some good people will fail, but some other good people would be one of the most powerful men in the world. That is a beautiful thing. Be good do good.