Mr. Matouschek, as an economist you deal with optimal decisions every day. How do you yourself decide whether to trust someone?
In the best case, I already know the person. Then I know how they think and can assess whether they will actually keep their promise. For instance, one of my colleagues never goes back on his word because that would literally give him a guilty conscience. It’s easy to trust someone like that.
But we often deal with people we’ve never met before.
That makes everything more difficult. Particularly when a stranger is also pursuing their own business interests or is working for a company that by definition is trying to maximize its own profits.
So you can trust someone like that?
In most cases, yes. Otherwise our everyday lives would never work at all. But I always ask myself two questions beforehand. First: Does my counterpart have a long-term interest in keeping a promise although it might be more advantageous to break it over the short term? And second: Would other people find out if this person cheated me? The higher the long-term interest of my counterpart and the more transparency there is, the more likely I am to trust the person.
How often have you been correct using this method?
It usually works pretty well. But sometimes it doesn’t, of course. When I moved into a new house with my family a few years ago, my wife and I hired an interior decorator and paid in advance. That was admittedly somewhat naive. The decorator did a good job for a while, but then he was suddenly gone. Just vanished off the face of the earth.
Did you research the decorator beforehand?
Friends recommended him to us. And we were certain that he would be interested in our recommending him later as well. But apparently we were wrong about that. There were also no online reviews of him. To that extent, there was a certain lack of transparency.
“Without trust, the market economy would wither on the vine.”
You research trust as an economist. Have your findings helped you?
Yes, there is always overlap. In the specific case of the interior decorator, for instance, it was interesting because he should have had a strong theoretical interest in our recommending him to others. So much business in his branch comes from personal references. But sometimes things in real life work differently than they do in theory. As an economist and game theorist, I also look at trust through a very special set of glasses.
And what do you see?
Incentive systems above all else. I’m interested in whether a person keeps their word and what types of incentives support that even though there’s no benefit over the short term. Incentives are everything.
Can you provide an example?
Let’s say that I am taking a business trip and pick a hotel because it advertises an absolutely gourmet breakfast. It is interesting to see whether the hotelier actually serves me breakfast of the promised quality after I’ve checked into the hotel. Once I’ve paid, the hotel is faced with the increasing temptation to serve me a more mediocre breakfast to save on costs. In my definition, the hotel would be trustworthy when it has the will to prepare me the promised breakfast despite this temptation.
Why would they do that?
Because alongside the short-term temptation to maximize profits is the long-term incentive. As long as the hotel isn’t planning to close anytime soon, it’s also dependent on paying guests in the future. For instance on me, the next time I’m in that city. Or on other guests who decide to book the hotel on my recommendation.
But they might also gamble that you’ll never come back to that city anyhow and other guests won’t find out about your dissatisfaction.
That’s exactly the trade-off the hotel has to consider. How they decide depends strongly on the circumstances. Taking a game theory approach, we’d argue that it depends on how often the game—in this case my choice of a hotel—will be repeated and how high the level of transparency for this decision is. Online rating portals, for example, increase the chance that other guests would find out about my experience. The transparency increases. And with it, the incentives for the hotel to keep its promise.