Your ageing smartphone has just given up the ghost. Would you chance handing it over to a stranger for repairs? First you would think about whether its memory holds any sensitive data, and wonder what the stranger might do with it. Once you’re satisfied there are no ill intentions, you would decide whether you believe the stranger has the ability to repair smartphones. Given the success of the entire transaction depends on the latter, it seems counterintuitive that this judgment be made only as a second step, yet this precisely what we all do.
When we encounter someone new, the initial response is instinctively to make a judgement about the person’s intentions towards us. Is he one of us or one of them? Is she friend or foe? Only once you have made a decision about the other’s intent, do you take a second step and judge their competence. The evaluation of unknown others along these two dimensions is truly universal: everybody does the same thing, and right around the globe. By some counts, these two judgements explain upwards of 80 percent of our opinion of all unknown others. The combined score is what is more commonly known as trust.
Consider for a moment the professional group that almost invariably appears near the top of the list of the ‘most trusted’ across the developed world: firefighters. Like people in many other professions, they are perceived to be competent. They have, after all, undergone rigorous selection procedures and very demanding training programs. What separates them from other professions, and explains why they are unchallenged in the trustworthiness stakes, is that they are perceived as having benevolent intentions. Scoring highly on intent is not about being seen as having charm, humour or personality, it describes being perceived as having other people’s best interests at heart. In the case of firefighters, it is widely believed these individuals would put themselves in harm’s way in order to shield others from harm. Contrast this to the professional group that typically scores the lowest on both dimensions: prostitutes.
Trust isn’t something to be lost – it is TWO things to be lost
If one knows how people rate others on these two dimensions, one can reliably predict how they will perceive, and behave towards these others. Think about Sports Direct compared to John Lewis, Clinton compared to Trump, May compared to Corbyn. It is for this reason that brand consultants and political campaigners have taken such a keen interest in measuring, and in trying to influence those perceptions. But there are lessons for investors too, particularly when scandal embroils a publicly quoted company and commentators talk about a loss of trust. In these cases, stock valuations often come under pressure and investors sense buying opportunities. But are they right to do so? Is the loss of trust always temporary?
It is often said that trust ‘takes years to build but can be destroyed in seconds,’ but there is actually no scientific evidence to support this adage. In reality, trust isn’t even just one thing to be lost, it is two: the perception of intent and of competence. To conclude that a person or company is competent does indeed take a long time because it is based on repeated observations. However, it also takes a long period of observation to undo that perception, so competence-based trust is actually quite robust. Intent-based trust, in contrast, can emerge almost immediately if we think that someone is ‘on our side’. However, if we then see any information to the contrary, intent-based trust evaporates instantly, and is extremely difficult to rebuild. As a general rule, if the emotion you experience after a loss of trust is disappointment, it was competence-based trust. The emotion associated with lost intent-based trust is betrayal.
So which trust is lost when, for example, an auto manufacturer cheats on its vehicle emissions tests, or a technology company delivers devices whose batteries explode, or an unpretentious bank charges millions of unwitting customers for accounts created without their consent? One has to make this distinction if one is to judge whether the loss of trust is likely to be fleeting or lasting.
For the carmaker, there is no real change to our perception of competence as a result of the scandal (our judgment about its engineering prowess might even have been enhanced), so this is all about intent. However, low emissions were probably not the reason most consumers bought their cars, so the impact, although lasting, is modest. The technology company does reveal a lack of competence, but our disappointment is limited to a single product; it does not extend to the entire firm. Moreover, a decision to replace all the defective devices, at great expense to the firm, signals that it puts consumers’ interests ahead of its own, i.e., enhances intent-based trust. For this firm’s competence-based trust to be eroded, its televisions, microwaves and washing machines would also have to start exploding. The down-home bank, in contrast, appears to have jettisoned solely its intent-based trust, and does so precisely in the area in which the customer relationship was built – its perceived folksiness. Account holders feel betrayed, so this trust will be extremely difficult, if not impossible, to regain.
Science has now demystified the once vague and subjective notion known as trust, and revealed it to be a well-defined, robust, two-dimensional construct. This knowledge is valuable for identifying the winners and losers among smartphone repairers, political protagonists, and among scandal-struck stocks.