Predictably Irrational (25 page)

Erosion of Trust over Time

In the picaresque film
Little Big Man
, the protagonist, a once-trusting but increasingly cynical young Jack Crabb (played by Dustin Hoffman), takes up with a one-eyed snake-oil salesman named Merriweather, who promises him that “if you stick with Merriweather, you'll wear silk.” Crabb and Merriweather travel from town to town in the Old West, selling a miracle drug that Merriweather promises can make the blind see and cripples walk, but that is really just a brew concocted from rattlesnake heads. Of course, people get sick after swallowing it, and the townspeople take revenge by tarring and feathering the two tricksters. (In the real world of 1903, an analogous medicine called Rexall Americanitis Elixir was “especially recommended for nervous disorders, exhaustion, and all troubles arising from Americanitis.”
²⁰
) Of course, old-fashioned trust abusers like Merriweather and the makers of Rexall Americanitis Elixir are but mild offenders relative to those of the modern age.

Today, it's easy for one individual to start selling “wonder pills” that promise to help you lose weight, keep or regrow your hair, enhance your sex life, and energize your workday. Unsuspecting people who buy such concoctions get all the benefits of placebos and, in the process, lose plenty of money. Meanwhile, the dishonest pill-purveyors gain substantially while further eroding the overall level of trust (at least for those who didn't benefit from the placebo effect). This erosion not only makes it harder for the next wonder pill salesperson to peddle goods (which by itself is a good thing), but also makes it more difficult for us to believe those who truly deserve to be trusted.

T
HERE'S ANOTHER ASPECT
to this problem. Imagine that you are an honest person and you want to remain that way. How should you behave in a world where most people are untrustworthy and most individuals don't trust others anyway?

For a concrete example, suppose you've just joined an online dating site. If you suspect that most people on the site slightly exaggerate their vital and biographical statistics, you're right! When Günter Hitsch and Ali Hortaçsu (both professors at the University of Chicago) and I looked into the world of online dating, we discovered that men cared mostly about women's weight and women cared mostly about men's height and income. We also discovered, perhaps not surprisingly, that the online women reported their weight to be substantially below average, while the men claimed to be taller and richer than average. This suggests that both men and women know what the other half is looking for, and so they cheat just a little bit when describing their own attributes. A fellow who is 5'9" and earns $60,000 annually typically gives himself an extra inch and $30,000 raise, describing himself as being 5'10" and making $90,000. Meanwhile, his potential partner remembers her weight in college and, with a 5 percent discount, becomes 133 pounds.

But what happens if you're a 5'9" man and you decide to be honest since you believe honesty is a critical component of a good relationship? You're going to be penalized because women reading your 5'9" assume that your real height is 5'8" or 5'7". By refusing to cheat, you have substantially lowered your market value. So what do you do? You sigh, stuff your hands in your pockets, and realize that there's a lot stacked against honesty. Given the importance of finding a partner and having surrendered to the sad fact that everyone cheats a little, you too, I suspect, would give in and decide to fudge the facts just a little bit.

Of course, once we begin to cheat, even if only by a little, over time it can become a habit. Consider, for example, the process of writing a résumé. I see many of my students' résumés when they apply for jobs or graduate school and ask me for letters of recommendation. In their desire to stand out and grab the attention of the prospective employer, and because they think that everyone exaggerates a bit, they do too. Accordingly, anyone who's ever taken intro to statistics is suddenly “fluent in statistical analysis,” a part-time job spent inputting data for an experiment turns into “assisting in data analysis,” and a two-month internship in Paris becomes “fluent in French.” In fact, the situation is so severe that when my research assistants show me their résumés, I sometimes feel as though the projects we have worked on together are actually theirs and that I've been assisting them.

How Deep Is Your Mistrust?

Following our “free money” experiment, Ayelet, Stephen, and I set up an experiment to see just how deep the level of mistrust of companies really goes. Specifically, we wanted to find out the degree to which people would doubt obviously truthful statements when these statements were associated with a brand.

We started out by asking people whether they thought that completely unambiguous statements such as “the sun is yellow” and “a camel is bigger than a dog” were true or false, and 100 percent of the participants agreed they were true. Then we asked another group of people to evaluate the same statements, with the added information that they were made by either Proctor & Gamble, the Democratic Party, or the Republican Party. Would giving these statements a corporate or political origin color our participants' impressions and would they be more likely to suspect the truthfulness of these statements?

The sad answer was yes. When we suggested that, say, the Democratic Party had issued the statement that “the sun is yellow,” our participants were more likely to question it. (“Sure it's yellow, but it also has red spots on the surface and sometimes it looks white, so is it really
just
yellow?”) If the Republican Party or P&G issued the statement that “a camel is bigger than a dog,” the participants again were less certain and hedged their bets. (“What if the dog is a bull mastiff and the camel is a newborn . . . ?”) By starting from a highly suspicious point of view, owing to the origin of the statement, the level of distrust was so high that it even influenced our participants' ability to identify obviously correct statements.
*

I
N OUR NEXT
experiment, we wondered whether this kind of mistrust could change the actual experience someone was having with a product. To look into this question, we invited University of Chicago students to our lab to evaluate the quality of some stereo equipment, asking them to listen to an “Azur” model stereo made by Cambridge Audio.

Before being set loose on the woofers and tweeters, all the participants read a brochure describing and reviewing all the different features of the stereo equipment. Some of the participants read a brochure said to be from Cambridge Audio, and others read the same exact brochure, but this one indicated that it came from
Consumer Reports
. Then, all of the participants took half an hour to listen to a composition by J. S. Bach and evaluate the stereo system. How powerful was the bass? How clear was the treble? Were the controls easy to use? Were there any sound distortions? And finally, how much would they pay for the system?

As it turned out, the participants liked the stereo much more if they were told that the information they read came from an unbiased source such as
Consumer Reports
. They also said they would pay, on average, about $407 for the system, far more than the $282 offered by those who read the Cambridge Audio brochure. Sadly, it appeared that mistrust in marketing information runs so deeply that it colors our entire perception—even in the face of firsthand, direct experience—causing us to enjoy the experience much less than we otherwise would. (And this happens with relatively trusted brands. Just imagine what would happen with distrusted ones.)

N
OW, LET'S RETURN
for a moment to my bad experience with the cable company's bait-and-switch. Ayelet, Stephen, and I decided to run a little study of our own with the ad that promised me one month of free digital cable. We showed it to a few hundred people and asked them how much they thought this free offer would really cost. Being somewhat naïve and gullible myself, I was originally expecting the price to really be free (which, of course, it was not), but it turned out that very few people in our sample were as naïve as I had been; the vast majority expected the offer to cost them somewhere between $10 and $70. It seemed that most people have learned over time that there really is no such thing as a free lunch (or free cable service), and they adjust their expectations accordingly (although they are still annoyed when they find out the real price).

But this is not the end of the bad news. We also split our sample into two groups—one group that had prior experience with that particular cable provider and one that had not—and compared the two groups' cost estimates for the advertised free service. It turned out that there was a large gap between the two groups: those who'd never done business with the “free cable” company were just as gullible as I was, while those who'd done business with the cable company estimated the real cost to be much higher. What was the cause for this difference? You guessed it: those with past experience had been burned before and, as a consequence, revised their trust in anything that originated from this cable company.

Is There Hope?

I realize all this sounds very pessimistic, but there is a brighter side. After all, human beings are inherently social and trusting animals, and we tend to believe in one another even in the face of clear rational reasons not to do so. Despite the difficulties of overcoming broken trust, I think that it is possible to repair it, given the right amount of investment and direction.

Consider the archetypal example of Johnson & Johnson's handling of the 1982 Tylenol tampering incident. In September 1982, seven people in the Chicago area died after ingesting Extra Strength Tylenol capsules that a pharma-terrorist had adulterated with cyanide. From the beginning of the crisis, Johnson & Johnson's managers set the safety of the consumer as their top priority and did everything in their power to contain the tragedy, regardless of where the fault lay. Johnson & Johnson quickly and voluntarily halted Tylenol production, withdrew all Tylenol capsule products from the market, urged the return of all previously purchased Tylenol capsule products, and readily provided replacement tablets.

The company ultimately destroyed millions of bottles of Tylenol at a cost of more than $100 million. Tylenol's market share, which had accounted for more than a third of U.S. painkiller sales, dropped dramatically, and many experts predicted the demise of the popular brand. However, after a brief period, Johnson & Johnson reintroduced Tylenol in a new tamper-resistant triple safety-sealed container, accompanied by a blitz of advertising and positive media attention. Tylenol's market share recovered to 30 percent one year later, while Johnson & Johnson's share price recovered within two months.
²¹

The fact that the Tylenol scare remains the overly cited paradigm of effective crisis management in business is almost depressing. After all, the example is an old one, and few companies since have behaved in such an exemplary manner. Nevertheless, it did set a powerful example of how transparency and sacrifice can serve to restore public trust and help a firm set itself on the right path.

Another promising way for companies to create trust is by proactively addressing consumers' complaints. This approach is practiced by the cable giant (yes, cable giant) Comcast, which has begun responding to customer complaints even before they reach the customer service department. The director of digital care, Frank Eliason, discovered that by searching the internet for the word
Comcast
(or sometimes
Comcrap
), he could locate unhappy customers who were venting to themselves and to their friends. He then took the next step and started corresponding with the complainers about their problems before they became formal complaints. (Other companies—including JetBlue, General Motors, Kodak, Dell, and Domino's Pizza—also track customers' comments on Twitter and elsewhere.)

A more extreme version of this idea is for companies to make themselves transparent and vulnerable. By setting up Web sites where consumers can talk freely with the company and one another about products and services, warts and all, companies can expose themselves to large negative consequences if they ever misbehave. This type of transparency is a sort of commitment device that companies can use to force themselves to behave in a trustworthy way, even when they are tempted to do otherwise. And since in such a publicly exposed world it is harder to get away with flagrant misbehavior anyway, why not embrace more positive and trustworthy types of business processes?

Some special companies see trust as a public good (like clean air and water), and customers return the trust. One company in which I personally have a lot of faith is Timberland, the maker of outdoor clothing. I once attended a talk by Jeff Swartz, the CEO, in which he detailed many of the ways that Timberland is trying to reduce CO
2
emissions, recycle, use sustainable materials, and treat its employees fairly. At the end of Jeff's talk, another CEO asked him, “What are the returns on these investments?” Jeff answered that he has been trying to find an economic return for these actions but that he had not yet found it in the data. He further added that it would be nice if being environmentally and socially responsible was also financially rewarding but that he didn't really feel it was necessary. He simply wanted to make sure that his company followed the moral principles he wanted his kids to live by. After hearing this, I went and bought my first pair of Timberland shoes.

A Moral Tale

Aesop's tale of “The Boy Who Cried Wolf” is a powerful fable of lost trust. You recall the story: A boy shepherd tending a town's livestock one day decides to have a little fun. “Wolf! Wolf!” he cries, and immediately the townsmen come armed, ready to defend their precious animals. They find that they've been duped and return to the town. A few days later, the boy again cries, “Wolf! Wolf!” and again the townsmen come, armed, ready to defend the livestock. Again, there is no wolf. Finally, when a wolf really does come, the boy's desperate cries for help fall on deaf ears. The townsmen no longer trust him and leave him to fend off the wolf on his own. Consequently, the livestock fall prey to the wolf (in some versions of the story, the wolf eats the boy as well).