The Trust Problem

At the core of economics and finance is how the group—as a whole—deploys resources to meet the needs of the the group and its members today and to increase economic output in the future. Groups that deploy resources better than other groups outcompete those others, gaining in resources, territory, and population relative to others. Since humans are so much more effective when working in groups—smarter, more creative, and deadlier—individual survival and success depends on belonging to an effective group.

However, “groups” don’t do anything. Groups don’t even make decisions. Individuals make decisions, and single individuals or multiple individuals carry out those decisions. In order for multiple individuals to coordinate their efforts in a common cause, they need to work off a foundation of trust: the ability to predict another’s actions.

Trust often gets defined as much more than this—for example, the belief that another will act in a particular way. Too often, people conflate their value systems and desires with their statements of trust, but at its core, the only foundation needed for trust is for others to be predictable, which is enough to let you make decisions regarding how you relate to them.

Generally, in the US, trust is built on a belief that others are honest, reliable, and willing to forego their self-interest when that self-interest puts them in conflict with their commitments (at least to a degree). In the US, you and I probably won’t need to check up on each other. In the US, being trustworthy means that I can rely on you to do what you said you would, even if you could get away with cheating me.

If instead, I know that you will cheat me at every possible turn, it’s still possible for us to work together. In fact I can still trust you--I'll trust you to try to cheat me! Given that I know that, I’ll need to make sure you know that I will be verifying everything you do, so there is no opportunity for you to cheat me. Since you know there’s no opportunity, you probably won’t even bother trying. This kind of trust is the basis for many non-Western societies. Transactions are far more expensive in this context, and these societies face other limitations. Yet overall, it still works, if not as efficiently. The dead weight loss sucks for everyone, but nobody is bent out of shape about it. All that’s needed to build trust—of a fashion—is the ability to predict how others will behave.

Successful establishment, maintenance, and revocation of trust is one of the most important functions of groups. The groups that do it well can effectively coordinate the efforts of their members, tackling big projects, deploying resources even in difficult conditions, and generally improving the well-being of all members. Groups that fail to foster trust destroy their own capacity to coordinate the efforts of their members, limiting their effectiveness, technological progress, and growth.

The fundamental need for trust—and to form groups in general—is created by the limitations of the individual. No matter how smart, how wealthy, or how powerful, an individual is limited by:

1. Information
2. Expertise
3. Time
4. Security

Information  Limitations

First of all, raw information is itself often hard to gather. Imagine trying to verify the amount of corn planted in the US this year. You’d have to collect data about millions of square miles of farmland, identify the corn, and total it all up. This was completely impossible 20 years ago. The only way to get close was to rely on farmers’ reported numbers. (And this is for something objective and very easy to measure.) Modern advancements like Twitter, cell phones that can stream video, drones, and cheap satellite imagery have made far more directly information available, but conducting primary research is still expensive (and the cheaper options rely on you trusting 3rd parties to not alter the data before delivery).

Many problems, though, rely on proprietary information that can’t be gathered independently—the ounces of gold produced by a single mine, the amount of electricity used in a city, the defect rate of a certain car part, etc. You simply can’t get access to the data without permission from the controlling organization—and if you’re bothering to independently verify their data, chances are you don’t trust them to provide good numbers. The problem gets even worse you believe someone may be trying to actively mislead you. It's really hard to gather reliably data in that kind of antagonistic environment.

Expertise Limitations

Second, even after you have the data, it can require special expertise to effectively interpret it.

It’s tempting to think of “data” as an objective source of truth, but anybody who’s worked with primary data sources realizes how many problems there are between raw data and its effective use. The data has to be cleaned up, normalized to be useful alongside data from other sources, and interpreted. Often, the ability to accurately interpret the data is a skill only acquired through years of study.

No one person has the expertise possessed by mechanical engineers, civil engineers, doctors, epidemiologists, software product managers, and all the other professions we rely on every day. If any one person had to deal with the all the individual data streams, they’d be totally lost. So we have to trust others to turn the raw data into useful insights.

Time Limitations

Third, even if you were a super-genius who could learn all these fields and you possessed a massive data collection infrastructure, you’d still be limited by the fact that are only 24 hours in a day. You simply don’t have time to do everything. No matter your individual situation, you’ll require help to grow and harvest the food you eat, build the car you drive, mine and refine the oil that fuels that car, generate the electricity that powers your house, and on and on.

Security Limitations

Finally--and this is really far removed from most of our lives--you are just one person, and your physical security is not something you can ensure yourself. Read some history, and you'll quickly come across kings, queens, princes, and princesses who had everything and lost it all (including their lives) to a betrayal.

Because of these limitations, individuals are constantly forced to trust others for the most basic elements of human existence. We implicitly understand that trust plays a role in economic transactions, but trust in others is at the center of our basic understanding of the world.

“What we know” about the world is based almost entirely on what we're told. In some sense, we can think of ourselves as nodes in a giant computer or cells in a giant brain. Our understanding of the science, the past, and the present relies far on the information passed by neighboring nodes. Our knowledge of the world is far larger than our direct experience:

• The Earth is a sphere
• The story behind a wildfire
• The fact that Julius Caesar was assassinated
• The speed of light is constant
• What’s the result of the latest vote in my city?
• My friends had a good time a party this weekend
• The pyramids are over 4,000 years old
• The fact that there was an accident on the freeway
• The amount of corn was planted this year

We take for granted just how much information we have available to us today. The flood of information from outside sources has gotten so vast, we can often lose our own experiences inside of it and forget the “otherness” of what we know. How do you know if there was a riot in France? Or a flood in Nebraska? Or if the new Disney movie smashed box office records? We “know” so much more about the world than people ever have—but only because other people are collecting, packaging, and distributing that information. At some point, we just have to take a leap of faith—place our trust in the sources and accept this information as “true”.

To make matters worse—not only is it too much work to collect and interpret all this information—it’s far too much work for any of us to verify more than a fraction of it. Have you ever verified the astronomical measurements needed to prove the Earth orbits the Sun? How much time would it take you to just formulate the data collection plan? Even looking for corroborating sources would swamp us, if we tried to do it for more than a sliver of the information we receive each day.

Instead, we outsource even in that—we all have people we turn to when trying to quickly get up to speed on a new topic. Whether it’s the latest trends in social media among teens, the newest developments in robotics, the latest fashion trends, or a recent take on a political issue, you probably have someone who you trust to give you the best, latest take. You know they’ll have kept up to date on the latest developments and verified the information across multiple sources, as best as anyone can. In this way, we leverage the work of others, building on top of the trust we have in them—because even choosing what sources to trust is such an intense process, we can only do it a few times.

Our trust extends far beyond our social networks as well. We rely on specialized, faceless experts everyday, in countless ways: automotive engineers to make sure our cars are safe, civil engineers to make sure our buildings and bridges don’t fall down, doctors to keep us healthy, farmers to grow our food, software engineers to let us manage our data, etc. The list is endless. In fact, we often don’t even know these people are held accountable for the trust placed in them—we just assume that they are “because we live in a society”. We take direct responsibility for a vanishingly small part of our own existence. The majority of our “decisions” are actually just decisions about who to trust to act in our best interest.

We rely on others—on trust—to answer the most basic questions:

1. What is true, today?
2. How should I pursue my self-interest in that context?
3. What should be done to make the future better than the present?
4. Who should be given the power to make that future happen?

This is the Trust Problem at the heart of all groups. A group’s efforts to foster and maintain trust are the primary measure of its effectiveness at keeping bringing and keeping people together. (The group may have separate issues imposing its will on the world—but as long as it fosters trust, its members will at least go down with the ship together.)

Further, the specific answers to these questions determine a group’s capabilities to advance their technology, build infrastructure, and manage their wealth. Some answers confer significant advantages to the group over others, which might for stable groups while preventing those groups from effectively competing on the world stage.

I'll explore the different failure modes of the Trust Problem in future posts.