More on Trust

[Earlier, I have written about the concept of "trust," including trust in the cyberspace. I have also shared a paper and pointed to Oliver Williamson's analysis of the concept of trust and to his papers on credible commitments, comparing it to the analysis Thomas Schelling offers in his work on conflict and strategy.]

Michelle Dennedy, Sun Microsystems' Chief Privacy Officer, has written a note about "trust" in which she gives the formula: "GOOD MANNERS x STANDARDS x TRANSPARENCY x TIME = T R U S T...maybe."

Here is my analysis of this formula which I think is a bit different from Dennedy's. 

The time element has to do with repeated transactions and/or long-term relationships.  Through repeated transactions with a particular party we gradually become familiar. An element of "reputation" is introduced. In long-term relationships (of business or other kind), parties to the transaction often make relationship-specific investment, through which they come to "trust" each other more because they have mutual stakes that will be lost if the relationship is broken.

The transparency element has to do with an openness which again produces mutual stakes. Each party knows valuable information about the other party to the transaction. This alleviates some of the information asymmetries which often lead to a lack of "trust."

With standards, we can define or at least bound the rules of the game. Laws contain standards and permitted mechanisms for their application. Knowing the rules of the game to be the same for both parties leads the transacting parties to understand how the other party will react under certain circumstances. Standards, like transparency, also help with reducing information asymmetries.

We can think of good manners as an adequate implementation of standards. If one does not exercise good manners, one will most probably have broken the standards, one may then find no choice out the quagmire but to become less transparent, which often will lead one to be less worthy of long-term relationships through time. Thus, one becomes less trust-worthy.

Addendum

By way of extracting a few paragraphs from one of my comments on this entry, I'd like to share another formula.

First, note that good manners, consistency of behavior and standards all can be categorized under the same element, perhaps "consistency" ...

On the other hand, transparency has a lot to do with information exchange and asymmetries. Such mutual "hostages" (a la Thomas Schelling and Oliver Williamson) in the form of valuable information on one's transacting partner can actually cement "trust" by creating mutuality of vulnerabilities.

Transparency and information sharing is only one way to cement "trust" relationships through mutual vulnerabilities. Here are some other examples: Employees working for a firm often learn firm-specific skills. They are also often protected by the firm against market ups and downs and receive special benefits for remaining with the firm. Many other examples have to do with mutual investments that could lost in case a "trust" relationship is broken. (Relationships are broken when "trust" is lost.) The "trust" relationships between the U.S. and Europe and between the U.S. and Japan are as much based on tremendous and large mutual investments as on anything else. (See also Hubert Dreyfus' discussion of "trust" in his On the Internet. He describes and gives some real-life examples of how mutual vulnerabilities lead to trust.)

Finally "time" has often more to do with reputation than with "trust." In fact, one may argue that "time" only plays into trust when it leads to greater mutual vulnerabilities in the relationships because of some relationships-specific investment by both parties.

So, an alternate, simpler formula could then be

CONSISTENCY x MUTUAL VULNERABILITIES = TRUST

Some have also argued "consistency" out of the formula because they believe that consistency in relationships grow out of "mutual vulnerabilities" that demand consistent behavior. In this sense, "consistency" multiplier applies to both sides of the equation and can be eliminated from both sides.

Comments:

ٌI think at least as far as we think of trust as trust of our observers, I mean customers that observe us, then only good manners and implemented standards are important and "standards" multiplier may be redundant.

Posted by pasparto on April 08, 2007 at 07:10 AM PDT #

Time can be important for the two reasons I mentioned earlier--reptuation effect and the long-term relationships that lead to relationship specific investments. The former is of importance for any customer in the market. Reputation accumulates some of its value under "the brand." The latter, demonstrated ability to maintain long-term relationships, is of importance to customers seaking reliable suppliers over a long duration.

Posted by M. Mortazavi on April 08, 2007 at 04:45 PM PDT #

Oh, I couldn't express myself well, I meant, to my opinion, the formula is more reasonable to be like this: GOOD MANNERS x TRANSPARENCY x TIME = TRUST Of course transparency it's self, can be considered as an standard, so I would like to change the equation again: (WELL IMPLEMENTED STANDARDS) x TIME = TRUST or in a more informal form: GOOD MANNERS x TIME = TRUST Some of important standards to be implemented are those you and Michelle Dennedy have mentioned

Posted by pasparto on April 08, 2007 at 06:01 PM PDT #

Good manners, consistency of behavior and standards all can be categorized under the same element, perhaps "consistency" ...

However, there's something different in transparency and that has to do with information exchange and asymmetries. Such mutual "hostages" in the form of valuable information on one's transacting partner can actually cement "trust" by creating mutuality of vulnerabilities. (See also Hubert Dreyfus' discussion of "trust" in his On the Internet.)

An alternate, simpler formula could be CONSISTENCY x MUTUAL VULNERABILITIES = TRUST.

TIME has often more to do with reputation than with "trust." It only plays into trust, when TIME leads to greater MUTUAL VULNERABILITIES.

Posted by M. Mortazavi on April 09, 2007 at 03:19 AM PDT #

Thank you for “Mutual Vulnerabilities”, it is a point that I should think on it more. Thank you very much.

But there is something in “GOOD MANNERS x TIME = TRUST” that I still prefer it. I think it is more general, natural, and primitive. Imagine that you have a neighbor that treats you very friendly. Little by little you start to trust him while there is no mutual vulnerability. Why do you trust sun (I mean the star not the company!)? You are 99.999…% percent sure that it will rise tomorrow, because it has been doing so for 4.5x10\^9 years (before the time there was no earth!). I think generally trust (in somebody or a physical law, or …) is result of observing a pattern being repeated trough the time, so “GOOD MANNERS x TIME” is so nearer to psychological cause of trust.

I think it is the way of nature, cats, dogs, birds, apes, trust in things almost in the same way. But human has a difference with those animals, it seems it uses it’s say logical ability more, it likes to have “justifications”, and I think that’s why we need “Mutual Vulnerabilities”, It makes our trust “justifiable”. X trusts Y, One can ask X “Why are you sure that Y keeps it’s Good Manner trough the Time?” X can justify it’s trust so: “Because other wise Y loses something and Y doesn’t like to loose it”. I think this is the role of “Mutual Vulnerabilities”. Justifications make us sure that good state will be remained for a good amount of time.

It might be good to mention that believing in justifications is just another thing we trust, and I think we trust it because we have found it useful through the time.

Of course I am totally an amateur! I know nothing of analytic philosophy, psychology,philosophy of science, epistemology, or other things that one may need to obtain a good understanding of trust.

Posted by pasparto on April 09, 2007 at 08:45 AM PDT #

Pasparto -

Good ideas ...

But wait ... Two neighbors are already mutually vulnerable by their very physical proximity.

We should not understand vulnerability in a negative sense. Proximity and mutual sharing creates mutual vulnerability, in the sense that a failure in the "trust" relationship will lead to significant losses for both sides. This is true, say, even for family members. In a sense, parents and children are mutually vulnerable. There are other examples. See my note on Cyberspace and Trust.

We should be careful not to confuse "reputation" which comes with repeated observation, with "trust."

Finally, you're absolutely right, there are many senses to the word "trust" ... Here, we should only focus on what trust may mean in relationships of exchange. In other words, the parties are exchanging some things of value to each through the relationships of trust. It is in constraining ourselves this way that we've responded to the philosophical requirements. We need to clarify the context, nothing more.

By the way, I added an addendum, following our last round of conversation, to this blog entry. I think I clarified it a bit more than I had in our last round.

(It is good to see you are maintaining a weblog in Persian :-)

Posted by M. Mortazavi on April 09, 2007 at 09:53 AM PDT #

Of course clarifying the context is very important. To be honest, I still have some questions about your latter formula, but I admit that it can somehow model trust in business relations and highlights some of it's important factors.

...And you are very welcome to Naghsh!

Posted by pasparto on April 09, 2007 at 07:38 PM PDT #

Yes, this is a trust model for transactional relationships.

In other human relationships, while there's an aspect of this which survives to the extent the relationship is transactional, other aspects such as love and care, become important, as we we all know.

I will keep an eye on Naghsh.

Posted by M. Mortazavi on April 10, 2007 at 12:37 AM PDT #

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