What the Sharing Economy Tells Us about Trust

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CONTRIBUTOR / Brayden King

MAX MCGRAW CHAIR OF MANAGEMENT AND THE ENVIRONMENT
PROFESSOR OF MANAGEMENT AND ORGANIZATIONS
CHAIR OF MANAGEMENT & ORGANIZATIONS DEPARTMENT
KELLOGG SCHOOL OF MANAGEMENT / Sharing Economy

Risk skyrockets when it involves your personal belongings, like your home, car, or couch. Yet, in today’s sharing economy, it’s commonplace for people to take risks regarding the most vulnerable elements of their everyday life. King explains how, with ratings systems in place, leading companies like Uber have been able to grow rapidly, even with little to no regulation mitigating the risks. This is largely due to a reliance on reputation as a key incentive for people to behave well and build trust in the process.

Transcript

The sharing economy, people are asking other people to share important things with them—a home, a couch, a car, anything that you normally use personally for yourself.

And so, the risk is that if you’re sharing with somebody, they’re going to misuse it, they’re going to break your things, they’re going to do something that you don’t want to happen at your home.

And so, it really requires that people trust one another to take care of their personal goods, their services, and know they’re not going to take advantage of them.

So, trust, I think of as the grease that gets the wheels turning in the sharing economy. Without trust, it’s impossible for people to be—or, it’d be very difficult for people to actually give and share their personal items with one another, or their time.

Reputation is sort of this idea that “I can trust you because I know that other people have trusted you in the past.”

So, when you have a good reputation and it shows up in these rating systems, then people are more likely to trust one another and are willing to give of their time and home and car—whatever it may be.

And the people in the sharing economy have figured out very nice ways to get that reputation out there—they’ve created rating systems, they’ve created feedback loops.

And if you do something that would make you untrustworthy, it shows up pretty quickly in those rating systems.

Bumper: With Reputation and Trust, Who Needs Regulation?

Well, the sharing economy companies like Airbnb or Uber have really wanted to avoid being regulated as much as possible.

And the reason for that is because they feel like trust and reputation end up being proxies that keep people’s behavior in line and that if you try to overregulate it, it’s just going to increase costs and make it difficult for them to compete with regular services like hotels or taxi companies.

So, they really see trust and reputation as a proxy for regulation and making it unnecessary to do that at all.

Now, there’s clearly some people who are uncertain about that, and it usually arises when there’s a problem that occurs despite the fact that you have these reputational measures in place.

Take, for instance, Uber, which has had a history of complaints coming up where drivers have abused the privilege.

When something terrible happens, then obviously people begin discussing whether regulation would be a better alternative than simply relying on reputation and trust.

You know that if you are a user of Airbnb and you’re a guest at someone’s house, if you have a big party there and break all their stuff, then chances are it’s going to get reflected in your rating, your reputation, and there’s going to be a penalty attached to you, a stigma attached to you.

And in the future, it may be much more difficult for you to get the house, to get the room that you want.

So, typically, those things—reputation—make people behave well, and it makes them more trustworthy.