If you drive down the dusty streets of Hyderabad in the southern state of Andhra Pradesh, you will notice that many of the walls are painted with block lettering. “PROPERTY OF N. GOEL” on one wall, “THIS PROPERTY BELONGS TO A. RAO” on another. Property ownership and transfer are subject to an elaborate set of rules, which may be bent at a public official’s discretion. With enforced standards, a simple painted sign can establish a claim or throw one into dispute. Lawsuits last for years and scams are common.
Unpredictable business dealings deter investment and dampen economic growth. At one Aspen Institute seminar in February 2010, senior business leaders remarked that the predictable backroom negotiations of China were preferred to the unpredictable though more official procedures in India. China, indeed, has grown consistently faster than India over the past decade. The problem of real estate in India is, at its core, one of trust.
As the world becomes a more uncertain place and the weaknesses of classical economic models are exposed, trust emerges as a dominant strategy for navigating this new environment. Trust is an expectation of the future in a situation of risk (Luhman 1988) and finite time. Change creates uncertainty, which heightens the perception of risk. Within this setting, trust is required to act. Lack of trust, as in India, makes it harder to take risks.
Why is trust increasing in importance?
We see trust everywhere around us, in our financial system, in company brands, in politics, in our social relationships, and even in our very biology which predisposes us to reciprocity. This has always been the case. In the past 15 years, certain secular and interlocking trends have surfaced that have increased the criticality of trust. First, we have seen a dramatic acceleration in the digital infrastructure. With this, the Law of Unintended Consequences has been invoked in an unprecedented manner, resulting in far-reaching ripple effects – both positive and negative – of which we have yet to see the end. Heightened uncertainty, increased transparency, and greater interconnectedness are just a few of the effects.
Second, globalization – which some commentators have noted is a dynamic tending to ebb and flow over the centuries – has generally been on the rise in the past 15 years. The cross-fertilization of ideas and institutions, in combination with global trade, has resulted in spectacular economic growth in so-called emerging markets within the span of a single generation. The resulting impact to geopolitical power structures and inevitable socio-cultural changes also increase the level of uncertainty. At the same time, the impetus to conduct business with people from other cultures who are, on the surface, “unlike” us places greater emphasis on well-grounded trust as a facilitating mechanism.
Third, knowledge as a product and knowledge embedded in products have become a substantial proportion of world GDP. Productivity growth and innovation therefore become largely driven by the sharing of knowledge through human interaction. Knowledge-sharing is an inherently trust-oriented enterprise. Therefore, distrusted firms and individuals who sit within knowledge silos can expect to experience significant disadvantage.
Finally, individuals and other non-state actors are growing in power. Historically, nation-states and the Catholic Church held a near-monopoly on the ability to influence macro-level outcomes. This is no longer the case. Furthermore, there is no way to effectively control all non-state actors. Selective and grounded trust is the only available way forward. Ironically, as we look ahead, we find cogent reasons to do what we already knew we should be doing anyway.
How do we build trust?
Based on these secular trends, being trusted appears to be a sound strategy going forward. Intuitively, behaving in a trustworthy manner – especially in an environment of lightning communication – seems to be the most effective way to achieve this goal. But this takes time, often time that cannot be afforded. Is there a way to build trust more efficiently?
This question has never been more relevant. According to dead British economist John Maynard Keynes, recovery from a downturn demands that we have a return of both credit and confidence. Confidence is the layman’s term but what he really means is trust, which, unlike confidence, presupposes a situation a risk (Luhmann 1988). In some ways, a stimulus package is an attempt to initiate a virtuous cycle that returns confidence to the system.
We find some lessons in the theoretical literature. First, commitment signals are a tried-and-true method of building trust. The gift of an engagement ring, the divestment of a business, and a highly public statement are all examples of strong commitment signals. Closing off other options signals commitment to a single course of action.
Second, control is antithetical to trust. A situation of risk is necessary for trust and control removes risk. The greater the strictures, the less people will behave in a trustworthy manner when it makes selfish sense for them. For instance, if a contract is drawn with financial penalties for noncompliance, people will tend to use a narrowly rational reasoning instead of a broader frame that includes social and psychological considerations such as ethics and morality. Mortgage default is one example of this. While governance mechanisms and institutions can provide the foundation for trust, they must leave enough room for free choice that significant risk still remains.
Similarly, trust and trustworthiness are self-fulfilling dynamics. Trust engenders trustworthiness as much as trustworthiness engenders trust. This suggests that if you want someone to trust you, you should start by trusting them. Distrust is equally capable of generating a reality consistent with itself. When institutions fail, low trust results in alienation and retreat to smaller worlds of only local importance (Luhmann 1988). Because of this self-fulfilling dynamic, initial variables matter a lot. This is why an initial gift, a cultural tradition in many societies, can be so powerful (Hart 1988).
Trust is an extrapolation based on some body of evidence owned by the truster, evidence which may not necessarily be true, relevant, or contemporaneous. Therefore, the quality, diversity and quantity of information available can have a significant impact on degree of trust. Continual physical proximity can amplify trust, since voice and visual cues offer rich information. The good news is that trust can happen swiftly with high-bandwidth information flow. In virtual environments, the typical lack of voice and visual cues relegates the responsibility for trust-building to the somewhat flat quality of responsiveness, one of the reasons why it is much harder to build trust through technology-mediated interactions.
Social connection carries enormous weight in the trust-building process. It offers both high-quality information and governance mechanism. If a stranger is closely tied to the same social circle, then information about them can be collected from an array of sources. Furthermore, social interaction is both diverse and cognitively demanding. It presents significant challenges for strangers pretending to be someone they are not. People also tend to value their reputation and relationships, both of which can be damaged through a major trust default.
Finally, people are more willing to trust those who are “like” them. This is why “mirroring” can be effective in interview situations. The rational explanation for this dynamic is that the effort to gather information about people who are unlike oneself is greater, and the risk that accompanies trusting behaviour is perceived to be higher. Those seeking to build trust should consider how to engage von Economo neurons that stimulate empathy, such as finding common ground or telling a story.
What does this mean for the field of psychology?
Psychology is situated in a more than an individual, organisational or social context. It is also set in the background of politics, economics, and the sciences. Its relevance is dictated by the demands of a world larger than the pure academic discipline and a society broader than the few individuals fortunate enough to have letters after their name. The intersections are becoming the most fruitful source of productive friction – between theory and application, developed nations and emerging markets, historical context and a radically different future. To operate at these intersections, a good psychologist must become a polymath.
The intersection between psychology and economics holds particular fascination. Economists at the University of Chicago and elsewhere have ploughed the field of behavioural economics and found it rich. While Dan Ariely and Richard Thaler have written best-selling books, the field of economic psychology has stayed quiet for the past 30 years as many psychologists sought to avoid anything with the “taint of the economic.”
Psychologists miss a tremendous opportunity to extend common thinking beyond the typical narrow rationality nurtured by classical economic tradition to a view of the individual that is a more accurate representation of reality. After all, the goal of the social sciences should be to help people make sense of the real world. This view should incorporate socio-psychological and biological considerations into the individual decision framework, including the human desire to maintain relationships, our natural empathy with others, the power of social status, inter-social influence, and the need to maintain a coherent self-identity. The tradeoffs we make daily to optimize our resources and time are not always made with economic motivations. They are usually made, however, using the brain’s capacity for economic reasoning. While economists like to call people irrational, in truth most people’s decisions “make sense” – at least for them. What cannot be measured is not necessarily invalid. The counterpoint to the economist’s “predictable irrationality” is the psychologist’s “unpredictable rationality.”
Hart, Keith (1988) “Kinship, Contract and Trust: The Economic Organization of Migrants in an African City Slum.” In: Gambetta, Diego (ed.) Trust: Making and Breaking Cooperative Relations. Oxford: Basil Blackwell, Inc.
Luhmann, Niklas (1988) “Familiarity, Confidence, Trust: Problems and Alternatives.” In Gambetta, Diego (ed.) Trust: Making and Breaking Cooperative Relations, Department of Sociology, University of Oxford, Ch. 6, 94-107.