Undercover Economist

The meaning of trust in the age of Airbnb

I am on holiday in Bavaria, where, in between the beer and schnitzels, I have been contemplating the nature of trust. A rather old-fashioned guest house happily took our reservation and let us run up a bill of nearly €1,000 without ever demanding more than a signature. Not for the Bavarians the pre-authorised credit card. Our room keys were stored in an unlocked cabinet in a quiet corridor, along with the keys of every other guest in the place. It made me wonder why anyone was bothering with keys in the first place. Nevertheless, our belongings were not stolen and we paid our bill when we left. The trust had been justified.

Since Germany is one of the most successful economies in the world and Bavaria is one of the most successful economies in Germany, the thought did cross my mind that trust might be one of the secrets of economic success. Steve Knack, an economist at the World Bank with a long-standing interest in trust, once told me that if one takes a broad enough view of trust, “it would explain basically all the difference between the per capita income of the United States and Somalia”. In other words, without trust — and its vital complement, trustworthiness — there is no prospect of economic development.

Simple activities become arduous in a low-trust society. How can you be sure you won’t be robbed on the way to the corner store? Hire a bodyguard? (Can you trust him?) The watered-down milk is in a locked fridge. As for something more complex like arranging a mortgage, forget about it.

Prosperity not only requires trust, it also encourages it. Why bother to steal when you are already comfortable? An example of poverty breeding mistrust comes from Colin Turnbull’s ethnographic study The Mountain People (US), about the Ik, a displaced tribe ravaged by Ugandan drought in the 1960s. If Turnbull’s account is itself trustworthy (it may not be), in the face of extreme hunger, the Ik had abandoned any pretence at ethical behaviour and would lie, cheat and steal whenever possible. Parents would abandon their own children, and children betray their own parents. Turnbull’s story had a horrific logic. The Ik had no hope of a future, so they saw no need to protect their reputation for fair dealing.

One of the underrated achievements of the modern world has been to develop ways to extend the circle of trust by depersonalising it. Trust used to be a very personal thing: you would trust your friends or friends of friends. But when I withdrew €400 from a cash machine, it was not because the bank trusted me but because it could verify that my bank would repay the money. This is a cold corporate miracle.

Over the past few years, people have been falling in love with a hybrid model that allows a personal reputation to work even between strangers. One example is Airbnb, which lets people stay in the homes of complete strangers, a considerable exercise of trust on both sides. We successfully used it on another stop in our Bavarian holiday. Airbnb makes personal connections but uses online reviews to keep people honest: after our stay, we reviewed our host and he reviewed us.

To enthusiasts for “collaborative consumption”, the next step is to develop systems that allow users to take the reputation they have built up as a generous and conscientious Airbnb host, and to use it to convey that they are also a prompt and careful Lyft driver or a reliable and honest eBay seller.

But designing such a system is problematic. Science fiction writer Cory Doctorow posited a purely reputational currency in his novel Down and Out in the Magic Kingdom (US). Such currencies, he says, are easily manipulated by con artists and extortionists. We’re misunderstanding the reason that eBay and Airbnb work, says Doctorow. It’s not because of the brilliance of the online reputation system but “because most people aren’t crooks”, an idea any Bavarian hotelier would understand.

Personalised trust has never been fairly distributed. When Harvard Business School researchers Benjamin Edelman, Michael Luca and Dan Svirsky (pdf) conducted field experiments on Airbnb, they found that both hosts and guests were discriminating against racial minorities. Other researchers have found evidence of discrimination in places from Craigslist to carpools. New online tools are giving us the ability to treat faraway strangers as though they were neighbours — and we do, in good ways and in bad.

Trust is as unfairly granted in Bavaria as anywhere else. While browsing for shades in Garmisch-Partenkirchen, I warned my young son not to play with the merchandise: a sign forbade children to touch the sunglasses.

The shopkeeper bustled over and reassured me that the rule did not apply to my son. “It’s for the Arab kids,” she told me, beaming. “They just drop the sunglasses on the floor.”

Ah. My son is adorably blond but he is as capable of snapping a pair of designer sunglasses as any other four-year-old. Trust is sometimes given to people who do not deserve it. And it is often withheld from people who do.

Written for and first published at FT.com

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