De-spite Airbnb
The folks over at Airbnb are really nice folks. I have met a number of them personally and know that they have great integrity and are genuinely empathetic in nature.
In fact, I would venture to say that they are almost too nice.
Not long ago, I presented to Airbnb on the virtues of spite in creating a game theoretic for trust. I presented this in a conference room modeled after Dr. Strangelove. The irony was not lost on me — thinking about the War Room scene where the generals strategized about tit-fot-tat.
Here are a few examples of how a little bit of a mean streak could help them out. In fact, it could help us all out in the sense of creating a common benefit. A little bit of spite could go a long way in reducing free riders in the marketplace, increase trust, and give skeptical would-be hosts and guests the confidence they need to join the community.
Here is one example. We have all heard the horror stories of a house getting trashed by a guest — people who are cheats who violate the house rules and the terms of service to say, film a porn or, have a rave. These high profile house-destroying free-riders make the rest of us a bit more hesitant to allow a stranger into our homes. And I have spoken to a number of folks who have considered joining Airbnb but then reconsidered when they heard these stories.
Airbnb responded to these incidences in part by creating an insurance policy to assure homeowners and other hosts that they would be protected in the event that the rare unfortunate psychopath should destroy their place. The problem with that is that it is a rational response. Airbnb is optimizing their economic position by implementing such a policy.
But a retroactive cure to the destruction of a home is not a prophylactic. It does not engender trust in the marketplace because it does not create dis-incentives for the would-vandal.
Instead, Airbnb needs to pursue overt cheaters in a very public and visible way. It should pursue people to trash homes to the ends of the earth with every legal means available. In so doing, they will engender confidence in the marketplace.
Here is a great snippet of Dan Ariely highlighting the value of spitefulness.
But the problem goes beyond these edge cases.
Transactional risks are not shared equally between hosts and guests. A host can define the terms of the cancellation policy in a unilateral manner. For example, the host can choose a “Strict” cancellation policy which allows for a 50% refund no matter how far in advance guest cancels, and no refund within 1 week prior to arrival. But that same host can cancel on the guest 24 hours in advance for a minor fee, either $50 if greater than 7 days prior or $100 if cancelled within 7 days. When a host cancels, Airbnb generates a note in the reviews section noting the cancellation as a penalty. But these non-monetized negative sanctions are difficult to evaluate.
The asymmetries are disruptive to the establishment of trust. When would-be guests do not think that the host has equal skin in the game, those guests cannot rely on the reservation. I have spoken to users who will book Airbnb stays when traveling for work but not when traveling with family. If there is a last-minute cancellation, as a solo business traveller it would bot be so disruptive. But to a family on vacation, there is too much at stake. I can totally relate to this.
In this instance, the cancellation policies should cut both ways. Market-based transactions are efficient when the actors can create balances of risk and reward.
