Trust Economy — A Primer

prashant rampal
Jul 28, 2019 · 7 min read
Photo by Annie Spratt on Unsplash

With an explosion of peer to peer platform businesses in the last decade, “Trust” and how to build it, scale it and maintain it has gained unprecedented importance. I wrote this article at the start of 2019 as a high level analysis of what exactly is the new “trust economy”. How businesses like Airbnb, Toptal, Craiglist and many other gig economy businesses use trust as the backbone of their platforms. I believe at the heart of success (or failure) of P2P Platforms lies the presence or absence of Trust.

Across literature and research (both management and non-management), Trust has been an elusive concept to pin down. For example, it has been described both as a noun and as a verb. Sometimes a process, sometimes a behaviour, at times a social or institutional structure. The subtle nature of the concept has led to many not defining it at all and letting the reader ascribe meaning to it.

Look at the sheer volume of meanings that the word Trust conveys, it has more dictionary meanings than do similar words like ‘co-operation’, ‘confidence’ and ‘predictable’ taken together. On average “trust” (across three dictionaries, Oxford, Random House and Websters) has close to 17 definitions whereas the others average around 4.7. Which is much closer to or as many as, the very vague terms “love” and “like”.

Many scholars and researchers have alluded to the ‘circles of trust’. Where at the very center of our trust circle is our family and friends, followed by trust in social roles and people fulfilling them (doctors, teachers, professors, judges), next comes trust in social groups like clubs, schools, college associations etc., and the outermost circle of trust is comprised of institutions and organisations.

In the historical evolution of trust systems, to begin with trust was only bestowed on the innermost circle of friends and family, who shared common social traits, norms and even economic objectives most of the time. The inner circle stuck together to help the group sustain and grow. This interpersonal nature of trust was and still is (in such groups) closely meshed together with the concept of “social capital”. A concept of particular interest in today’s businesses, which we will talk about in some time. The more trustworthy was an individual, the more social capital she had. And quite intuitively the inverse is true as well.

With the growth of trade, the more trustworthy a person was the better were her chances growing her economic self-interests through beneficial trade partnerships etc.,. This trust system was still largely driven by interpersonal trust, but the circle had widened. Increased trade, especially outside of the community’s geographical scope led to inter community or even inter-national understandings and agreement which eventually evolved into more sophisticated trade and exchange regulations, contracts etc., and ultimately independent institutions to drive them. As now trust was placed in independent third-party institutions rather than personally known individuals, this allowed business to grow and flourish between people and groups who had no social ties.

Trust can also be seen as a hierarchical concept. In case of interpersonal trust, belonging to a family or social group with historically higher trustworthiness meant the individual enjoyed the same too. With the growth of institutions driving trust in trade and economy, groups or individuals that enjoyed higher trust value with these institutions also enjoyed more trustworthiness with economic partners like buyers, suppliers and lenders.

Institutional Trust To Platform Mediated Trust

Trust has been a basic building block on which every business has been founded. Trust is an abstraction that has real world permeation. Trust in one’s own abilities, or someone else’s abilities. Trust in people we work with or work for. Trust in governments or non-governments. Trust in institutions or anarchies.

The internet in the 1990’s suddenly gave us a new way to connect and interact with people. And in turn with businesses too. As digital technology has evolved, so has our social world in how we interact with other people and consume goods or services. Digital platforms based on algorithms that filter and match millions of people around the world, social networks, can play a part in influencing trust relationships. Even though there is no inner circle of friends and family present here, however the key to trusting relationships in the digital world is still “social capital”.

Digital trust cues like reviews and ratings help in accessing And assessing social capital of other members of online communities. This new digital infrastructure which is fast, immediate and simple, challenges the cumbersome state regulations and interventions which are generally costly and complex.

Digital sharing or peer to peer exchange platforms brought about a subtle yet very important evolution in how various actors interacted with each other within the concept of trust. Traditionally trust has been a Dyadic relationship between the Trustee and the Truster — firm and consumer, firm and institution, consumer and institution etc. In the digital sharing platforms this became Trust Triad — the Platform on which the interaction took place and a set of peers who exchanged goods or services amongst them. Who also could switch roles between being consumers and providers, creating blurred boundaries.

The trust Triad of platform businesses give us an opportunity to differentiate between institutional and interpersonal trust relationships on the platform. The peers interacting on the platform decide to engage with each other largely through matching, I.E., likeness of profile, thoughts, interests etc. This interpersonal trust lies at the core of peer to peer engagement on a platform. For example, when you are going a family vacation and looking to book an Airbnb, you are more comfortable with profiles which have families of their own and know the needs of a family vacation home. Listers who have good reviews from families.

The platform is an enabler for this interpersonal trust, however also needs to be perceived as a trustworthy institution itself. Along with interpersonal trust the institutional trust aspect of platforms cannot be ignored. The structure provided by underlying regulations, security nets, guarantees on a platform provide the essential structural assurances for peers to interact with each other on a platform. Going back to the hierarchical concept of trust, the fact that the platform enables trust between itself and its users, and amongst peers, exhibits that trust can be transferred from one source to another in a hierarchical order. This is important particularly in early stages of a platform when users have little familiarity with one another. For example, Alibaba provided escrow services on its platform to create trust on the platform and its users when there was non-existent trust between international buyers and Chinese manufacturers.

Is Digital Trust in Peer to Peer Sharing economy platforms different from trust in Conventional Platforms?

The basic principles of interpersonal and institutional trust do remain the same at its core, however there are some subtle yet distinct characteristics of how these plays out amongst each other and what does the interplay mean for the business. We have already touched upon how a Dyadic trust relationship changes to a triadic or hybridized trust construct especially in P2P sharing platforms, where trust in platform is different than the trust in peers. Also, notably trust in the platform does not essentially mean trust in the peers. For example, Task Rabbit, where growth in users shows the user trust in the platform around efficacy, speed, simplicity & safety. However, that does not mean there is the same amount of trust in the peer groups on the platform, which is only validated or invalidated after engaging with the peer. Which also does not mean that a prolific user of Task Rabbit uses the same peer again. Essentially, repeated interaction on the platform do not mean repeated interaction of the same peer dyads.

A crucially different trust trait noticed, is that in most cases the intensity of social interaction (I.E., interpersonal trust) on a sharing economy platform is generally higher than one on a conventional platform. It is much more different when you book an Airbnb house where you would like to know as much as possible about the lister versus your possible interaction with an Amazon delivery boy. In fact, Airbnb is an advanced level of social interaction and interpersonal trust where one is stepping into someone’s personal space and the risk outcome of something going wrong is immense vis-à-vis shopping on Amazon. For instance, someone getting electrocuted and dying in an Airbnb house where the owner cut corners on the electrical wiring versus the inconvenience of a wrong delivery by Amazon.

Another thing to think about is the purpose of the platform. Sharing economy, in principle tries to solve the problem of ‘Access Vs ownership’ through its platform based business models. It is one peer providing access to a service or utility from an under-utilised asset when required, instead of owning it. This further creates more risk in the transaction, because the user expects to receive the good or service in a certain condition and the provider expects the same to be used and returned as per her expectations. So when you share your neighbour’s car through Relay Rides you expect the car to be in a certain condition and your neighbour expects the car to be used in a certain manner and returned back in a certain condition. And because in most cases the transaction in a sharing economy platform can at its core be defined as access to a service rather than ownership of the asset, by its very nature the transaction becomes riskier. In any business, platform or no platform, service transactions are always riskier owing to factors like punctuality, cleanliness, reliability etc. Simply put more can go wrong.

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prashant rampal

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