You Don't Have To Be Desperate To Believe That Trust Is A Good Thing

from the overreacting dept

Wired Magazine recently had an interesting cover story entitled How Airbnb and Lyft Finally Got Americans to Trust Each Other. It's a basic discussion of how much of the so-called "sharing economy" is built around trust, and how that's a sort of surprising thing, considering how little people tend to trust each other. Over at New York Magazine, writer Kevin Roose played the grumpy contrarian, arguing that the success of the sharing company has nothing to do with trust, but is all about desperation. And thus a big debate has kicked off. I'm going to argue that the debate is meaningless because it's not an either/or situation and neither point really matters much anyway.

First, the whole "desperation" argument is really somewhat nonsensical. You could make the same argument about any major cultural or economic shift in history if you wanted to. Did mass production and the industrial age come about because of desperation? Why, yes, you could show how that's the case as well. But it still created tremendous benefits around the globe and created tremendous progress (even for those who were desperate). I mean, you could equally argue that nearly all work is the result of desperation. If you don't have a job and aren't independently wealthy, you're pretty desperate for a job. But we don't automatically argue that all economic productivity is because of desperation.

Second, the whole "trust" issue is overstated in the Wired article. Even the article itself notes that studies show that Americans actually trust each other a lot less today than in the past (potentially for good reason). And that's because people seem to be confusing general trust with specific trust. What these services enable are ways to have a better sense of who you can trust. In fact, you could argue that what these services have done is help show who you can trust within an inherently untrustworthy population.

But my major takeaway from this argument is that both sides are missing the larger point of why this is so important. Just recently, we were discussing Jeremy Rifkin's new book, in which he argued that this is actually the beginning of an entirely new economic paradigm that eclipses capitalism. But, as I argued in the piece, I think it's just a much more true form of capitalism that allows for much more efficient uses of resources for everyone -- and that's regardless of whether or not there's more trust or desperation in the system.

Prior to industrialization, trust was more prevalent, in part because you would have many, many interactions with the same small group of people. You didn't deal much with outsiders, and tended to know the people you dealt with on a regular basis. That engendered trust, because relationships were built, and you knew that abusing trust would come back to bite you in future interactions. With industrialization and urbanization, some of that trust broke down, because you no longer only dealt with a close-knit community of folks over and over again. You had many more transactions where you likely would never deal with the counterparty ever again -- opening up a lot of opportunity for fraud and scams. Like in the classic Prisoner's Dilemma experiment -- when it's run only once, people tend to cheat. When you know it'll be run many times over, people learn to "trust" each other, because it leads to much better long term outcomes.

So, without those regular interactions with the same kinds of people, government often stepped in with regulations to try to effectively force a more trustworthy framework on the world. You had health inspectors for food, safety regulations for work, general regulations on hotels and taxis and a variety of similar laws -- all designed to make sure that these kinds of transactions, which are generally one-offs, can be trustworthy and safe. Given the overall world they existed in, those regulations made perfect sense.

However, as is often the case in a regulatory environment, they also introduced certain inefficiencies in the process, making running those business more expensive, locking in certain (perhaps less-than-efficient) business practices, and often keeping out new upstarts and innovators. As we've seen, overtime, incumbents (despite claiming to hate regulations) will often embrace such regulations because they keep out competitors.

So here's where the interesting shift has come into play. Things like Lyft and AirBnB are using a combination of transparency and information to create systems that allow for both the more efficient use of resources and making transactions more trustworthy even without making use of those regulations. This freaks some people out and it clearly does not always work perfectly. But, on the whole, it has created some really amazing new opportunities on both sides of the markets, in which greater information transparency steps in and provides a better solution to legacy regulations, with significantly less overhead. That's freeing up economic resources by increasing efficiency in a really compelling way.

And this is why the traditional players, who had embraced the regulations wholeheartedly, are so pissed off. It does seem unfair that AirBnB can effectively compete with hotels without complying with hotel regulations. But part of the reason it does so is that the system that AirBnB has created doesn't need those kinds of regulations. While it's just anecdotal, my own experience using AirBnB has consistently resulted in a much better experience than at hotels, and one where that kind of trust that is built up matches much more with the pre-industrial version. As an example, I'm actually Facebook friends with one AirBnB host whose apartment I used once, and I will likely stay at his place again in the future. He didn't join AirBnB out of desperation, but because to him it's a great way for him to run his own business, which he's always wanted to do.

Thus, I think arguing over whether or not these services have increased trust or are a result of desperation is sort of a meaningless argument. It's happening one way or the other. What's much more interesting about this is how it's actually opening up all sorts of new efficiencies and economic opportunities for everyone -- and doing so by using information to show why old regulations, no matter how much they made sense at the time, may be inefficient and obstructionist today.
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Filed Under: desperation, economics, efficiency, innovation, regulations, sharing, sharing economy, trust
Companies: airbnb, uber


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  1. identicon
    Andrew D. Todd, 29 Apr 2014 @ 4:22pm

    Real vs. Fictional Trust, With a Sidenote on Used Computer Printers.

    You haven't heard the latest AirBnB news. It seems that New York prostitutes are using AirBnB apartments as disposable brothels, because there are no doormen, bellhops, etc. to ask questions. The case emerged when a customer decided he wanted to carve up the prostitute, apparently after a payment dispute. Of course, he could probably have walked out, and there wouldn't be be much the girl could do about it, but you know how it is... This is a normal occupational hazard of "naughty girls." The girl was lucky in that she only got cut up, and started screaming. Sooner or later, an AirBnB landlord is going to return home to find the corpse of a strangled girl. That will be something that AirBnB cannot settle with money.

    Dana Sauchelli and Bruce Golding, "Hookers turning Airbnb apartments into brothels," New York Post, April 14, 2014
    http://nypost.com/2014/04/14/hookers-using-airbnb-to-use-apartments-for-sex-sessions/

    JP Mangalindan, "Is Airbnb's latest setback bad for the sharing economy?" April 21, 2014
    http://tech.fortune.cnn.com/2014/04/21/airbnbs-latest-problem/

    It is worth reading Joan Didion's _Slouching Towards Bethlehem_ (1968), and specifically the included 1967 essay of the same title, describing the "summer of love" in San Francisco. Haight-Ashbury had all the squalor of a refugee camp. Fourteen-year-old girls were being told that they were insufficiently trusting if they did not sleep with any man who wanted them, with no promises and a disastrous aftermath. A professional pimp's delight, in short. I have to remind you of Jane Jacobs' aphorism that "No one can keep open house in a city." There are whole populations of beggars and scoundrels, probing for weaknesses in the locks, and when a weakness is discovered, the whole gang goes racing through. That's just what a giant city is like. Jason Tanz's WIRED article is yet another paen to AirBnB, and its belief that it can use number-crunching to manage risk. This may be true when the risk is no more than $50,000 of self-insurance. Prostitutes are usually druggies, and nothing is quite so real to a druggie as his withdrawal symptoms. It's not very easy to appeal to their higher nature.

    Trust has an economy of scale. To take the example of E-Bay, it is harder to be an Amazon Marketplace seller than to be an E-Bay seller. Amazon wants someone who does not just have some stuff to sell off, but is willing to go and scrounge stuff from garage sales, etc., and resell it via Amazon Marketplace. This means someone who will wind up selling hundreds of items, and whom it will be possible to assess, primarily on their track record. Amazon's terms and conditions reflect their preferences, and discourage people who want to sell their stuff to make the rent. Amazon is taking a leading role in developing robotized warehouses, and in many cases, where economically practical, encourages sellers to deposit their wares on consignment. That way, Amazon knows whether or not the items have been shipped to customers, or even whether they ever existed, but it preserves the essential strength of the Marketplace seller, his ability to ferret out undervalued merchandise.

    Now, looking at RelayRides, AirBnB, etc. a low risk transaction is one in which all these things are merged together. Suppose you live in St. Louis, and you have to go to San Francisco on a business trip. When you arrive at San Francisco airport, your landlady is waiting for you at the security gate. She goes with you to baggage claim, and helps drag your bags out to her car in short-term parking, drives you home, and makes you supper. The next morning, she makes you breakfast, and rents you her car to go into town and attend to your business. You come home for dinner, and the next morning, after breakfast, she drives you out to the airport again. If you are traveling with a child in tow, the bargain would include babysitting.

    The landlady knows something about you by virtue of having met you at the airport. The airlines have their own security arrangements. It is probably difficult to emerge from the security barrier, or collect one's bag at baggage claim without being an actual passenger. By the time you borrow her car the next morning, her information has been extended by several hours of conversation. Since you don't drive home from dinner, the possibility of driving drunk is immensely diminished. If you get in the habit of staying with the same landlady, over and over, I suppose there is a certain likelihood of her being named as the correspondent in your divorce, but that is another story.

    The messy AirBnB cases have involved landlords who did not want to make a profession of being hosts in the largest sense of the word, finding ways to help the guest in all his endeavors for the duration of the visit. They merely wanted to defray the cost of an apartment which they could not really afford, by having someone stay there while they were away for a day or a week. These cases don't seem to occur outside of New York or San Francisco, with their over-inflated real-estate markets. If you read Craigslist's New York apartment listings, you find many rather strange advertisements.

    When I lived in Philadelphia, I listened to lengthy and plausible arguments from the local streetwalker, who I had to chase out of the stairwell. I've heard it all before.

    By the way, the correct link for the Slashdot articles is:

    http://tech.slashdot.org/story/14/04/27/063209/why-the-sharing-economy-is-about-desperation-not-t rust

    ------------------------------------

    One additional point, relating to E-Bay: "stuff," in general is mass-production manufactured, and used stuff doesn't have much of a scarcity value. Students, buying used chairs and tables to furnish apartments, expect to get everything very cheap, to the point that shipping cost often make internet transactions uneconomic.

    People make money, buying and selling used goods, largely through circumvention of the manufacturer's attempts at monopoly. The classic case is used book stores. There is a curious parallel case, involving certain types of computer equipment, notably printers. I have just bought a fifteen-year-old used Hewlett-Packard printer on Amazon, and found that it installed trivially on a Linux machine. I also bought two re-manufactured inkjet cartridges, and found that they worked as advertised. In effect, I was paying to circumvent acts of intentional sabotage committed by Hewlett-Packard in the last fifteen years. Printing is simply not a growth industry at this point, and, in desperation, HP has turned to "planned obsolescence." They want customers to throw out printers which are electrically and mechanically sound, simply because of unresolvable driver issues.

    I had bought a new HP Deskjet 1000 printer, relying on reports that it was Linux-compatible. It turned out not to be, and when I researched the case, it emerged that there is no is no such thing as a Deskjet 1000. "Deskjet 1000" is merely a marketing label applied to an indefinite number of different and mutually incompatible printers. I carefully packed up the Deskjet 1000, if one may use that term, and hauled it down to the "give-away shelf" in the local laundromat. And then I did what I should have done in the first place, I took the Linux organization's printer compatibility list, and began pasting model numbers into Amazon's search engine, in a real-life game of "go fish," until I found a model, from a time when model numbers actually meant something, which was available, used, at a reasonable price. I bought one, from a thoroughly disreputable little junk store somewhere in the Midwest, and it worked. I didn't trust them exactly, but I have to have a printer, and the price fell within the scope of "acceptable risk." It was just that I distrusted the junk store owner a little bit less than I had come to distrust Hewlett-Packard.

    If one were to talk about the public interest, the VESA standard for video graphics adapters and monitors has been in effect for many years. So has the EIDA/SIDA standard for hard disks and CD/DVD drives. VESA does not support all the things a high-end graphics card does, of course, but it at least standardizes the functionality necessary for a windowing operating system and the major non-video-game software, such as word processors and internet browsers. From a point of view of the public interest, there is no sensible reason why printers should not have gone through such a standardization.

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