Trust Reputation, Beware of Regulation

by | Jan 7, 2015 | MARKETS, Regulation

Trust -- society depends on it.

Trust — society depends on it.

For most of history, our ancestors lived in clans with other family members, or in small villages. Everyone pretty much knew who was trustworthy. People behaved better because they wanted good relationships with family members and neighbors. It’s one reason that today we trust friends and family more than strangers.

Only recently have humans interacted with lots of people. Today, “50 percent of the population lives in cities,” points out entrepreneur Julien Smith. “We’re surrounded by strangers, and you end up with these systems in place that progressively get built (to determine:) ‘should I trust this person?'”

Smith created the website Breather, which arranges for strangers to rent private spaces — even living rooms — for business meetings. For his business to work, total strangers must have a reason to trust each other. The Internet makes that possible. His customers check his clients’ reputations before they agree to share a workspace.

Likewise, the website Task Rabbit blossomed by persuading people to trust total strangers to run errands for them. You post a task you want done — fix my shed, clean my apartment, shop for Mom, etc.; you state what you’re willing to pay, and Task Rabbit finds people nearby who might do the job.       But why would you trust total strangers to enter your home? Task Rabbit says its “rabbits” are screened for professional qualifications, but so what? I wouldn’t trust any company’s promise.

What I do trust is the reciprocal rating system that the Internet allows. Rabbits who are trustworthy get good ratings. Offices listed at Breather that are safe and pleasant get good ratings. Friendly customers who pay bills get good ratings.

It’s wonderful. Internet ratings give us more reason than ever before to interact with new people.

Before the Internet, we at least had word of mouth. It gave us some protection. When I was a consumer reporter in a single city — Portland, Oregon, then New York City — I could find a smalltime scam to report on every week. But when I moved to ABC News to report on national scams, I couldn’t find so many.

That’s because, in a free society, the way for a business to get really rich is to serve customers well. When it does, customers want more of your stuff. If you rip people off, word gets out, and your business doesn’t grow. There will always be scams, but they rarely fool many people for long. Bad companies lose trust and atrophy. Good ones grow.

Even the greediest businessman knows he needs a good reputation. And now, thanks to the Internet, his reputation is easier to find than ever.

The Internet also lets us harness the wisdom of groups. Feeling sick, and dissatisfied with the diagnosis you got from your doctor? List your symptoms on the website CrowdMed and a thousand medical “detectives” (mostly amateurs but also doctors and retired doctors) will try to come up with a more accurate diagnosis. A CrowdMed algorithm determines which opinions are most reputable. Would you trust a diagnosis by crowdsourcing? I might. Sixty percent of CrowdMed’s customers report that “the Internet crowd” brought them closer to a cure.

Big Government’s central planners sneer at crowdsourcing, calling it chaotic and unsafe, but it’s not. It’s better than government micromanagement. It works because people respond to incentives — in the form of both money and effects on their reputations.

In “The Theory of Moral Sentiments,” Adam Smith wrote that the prudent man “feels horror at the very thought of exposing himself to the disgrace which attends upon the detection of falsehood.” Self-interest ends up being a very good reason to keep other people happy.

Today I don’t go to a movie without checking movie ratings at People go online to check the reputations of potential girlfriends and boyfriends, songs, professors, doctors and — almost anything.

I trust these ratings much more than any certificate of approval from the Department of Business Regulation.

John Stossel is author of No They Can't! Why Government Fails — But Individuals Succeed. For other Creators Syndicate writers and cartoonists, visit

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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