On BBC Radio 4 there has just been a very interesting series of five, 15 minute, programmes about trust presented by Rachel Botsman of Oxford University. She dealt with various aspects of trust down the ages.

At first, trust was confined to the members of your group or the members of your tribe. In small groups you would hear from other people in the group whether a particular person was trustworthy and, of course, reputation counts. Even in larger groups, there was still benefit from trusting other members of the group rather than complete strangers, if there was still a sufficient closeness to warrant caution by a potential cheater that his actions might come back to haunt him. It would also be possible to ask the leaders of the tribe to judge who was in the right and give recompense.

So then trust is something we engage in providing that we can be reasonably certain that the trust is warranted.

The need for the trust to be warranted was far more difficult to achieve in connection with international trade. The ability actually to know people, or at least to know someone who knew them, integral to being part of a smaller local group, was missing. This meant that other means had to be found in order to try to avoid buyers being ripped off by suppliers. There was no effective court system for long-distance enforcement of contracts. It was hardly going to make economic sense for a buyer to travel, perhaps thousands of miles in mediaeval times, in order to try to persuade a court in the supplier’s area that you, a complete stranger, had been the victim of a breach of contract.

This meant that, amongst an important trading group, Maghribi traders, Jewish traders who operated in the Muslim Mediterranean in the 11th century, another system was put into operation. The traders all signed up to a charter which required that someone trying to defraud any one of the traders was black-balled by them all – permanently. A kind of early review system, and one which provided a massive disincentive to be an unreliable trader with such an important group of customers.

As Rachel Botsman has pointed out, though, there are increasing instances where there is what she refers to as ‘distributed trust’ – the sort of trust which is not really amenable to any sort of court system. Those who have a social media presence can establish a reputation online with complete strangers which will enable them to be trusted for things ranging from borrowing your dog to take it for a walk (yes, really), to car sharing.

But there are vast numbers of transactions on line which are financial in nature. Now even if we rely initially on reviews and recommendations, when it comes to money some means of enforcement is required. Most newspapers run a section which tries to deal with customers’ complaints. And from their columns It is obvious that those making complaints assume that the financial transactions they have engaged in, the online purchase of goods or services (typically holidays), will be backed up by consumer rights legislation.

And it is true that we now have an attempt to provide justice to the individual through state regulation rather than the court system. We have state compensation (up to £80,000) for losses if a bank fails. And we have consumer rights legislation which means that, in numerous sectors of business, ultimately the state can fine, order compensation or even withdraw the ability of a company to operate if its track record becomes too bad. Rather like the Maghribi traders’ system. 

Trust and the virtually complete absence of legal regulation in the world of crypto-currencies featured prominently in the spectacular collapse of FTX and the jailing of Sam Bankman-Fried. His initial success was an excellent example of the trust engendered by Daniel Kahneman’s ‘Halo effect’. This is a psychological bias which means that if we perceive one character trait of a person positively, it is likely to affect our subsequent judgements of other, unrelated character traits of the same person.

SBF had created a cyber-currency exchange and platform for investment which worked well and had low margins. He made donations, huge donations, to political parties in the States and to charitable trusts in various countries. He appeared to be both generous and successful and so it snow-balled; people trust the appearance of success. And this was success on the largest of scales.

Over the years there has been much pressure to regulate the trading of bitcoin and its various offspring. Ironically, SBF himself called for such regulation. It gave the further impression that he was himself trustworthy. If regulation had been imposed, it would almost certainly, as with the banks, have provided for a scheme giving compensation for loss, at least as far as smaller investors were concerned. Being able to point to its existence would have gained him even more potential customers willing to trust him. He would however probably then simply have ignored the regulations - as the trial showed to be the case with his complete disregard for accounting and company law provisions, including the filing of false company statements.

The lack of regulation of the industry meant the only ‘regulation’ was regulation after the event: the prosecution for fraud.

This has left significant doubt as to whether the investors will actually get all their money refunded. The administrators of the bankrupt companies are having to try to get back not only the assets bought with embezzled funds, but also donations made to various charitable bodies, including ones based in the UK. Key to this is Bankman-Fried's very significant financial backing for the Effective Altruism movement.

One prominent ‘branch’ of the movement emphasises the making of large amounts of money during the ‘80000 hours’ of ones working life in order to pledge it for the movement’s aims. It currently has a disclaimer/apology on its web-site concerning SBF whom they had previously put forward as the epitome of how to engage in effective altruism.

According to his parents, his obsession with giving his money away (he once said he would spend more than $100 million to stop Donald Trump in 2024) underlay a mentality that crypto was simply a pathway to give away money. During the trial, SBF’s lawyers quoted his father saying: “Sam started FTX as a way to earn to give.”

His ex girl-friend told the court, however, that he had adopted a rather extreme form of utilitarianism which enabled him to justify his lying and deceit - he arrogantly believed that he could make more money by engaging in such conduct and hence benefit society on a very large scale indeed – that effective altruism idea...

Perhaps we could also think about that other larger than life figure, Mr Trump.

We often ask ourselves how it is that he can remain so popular with a large segment of the public after all that he’s said and done.

Again, I think that we can invoke the trust created by the Halo effect. He was a popular reality TV figure and managed to transfer that ‘successful business-man’ image into the political world. The cognitive bias, so difficult to overcome in the absence of critical thinking, is therefore shoring up his position.

I suspect that it is helped by another cognitive bias – Loss Aversion. While gaining £50 makes us happy, a loss of £50 makes us unhappy on a much greater scale.

And many, if not all, of Mr Trump’s true supporters have invested not only their emotions in this man, but also their money – whether in campaign subscriptions or the purchase of MAGA baseball caps. To accept that they have been conned would take a major revolution in their thinking. Far more comfortable to believe that everyone-else is lying about what has gone on and continue to trust Mr Trump.

This is currently having a direct effect. Trump’s ‘Truth Social’ has recently been floated on the New York stock exchange at a value of over $6 billion making each share worth $73.25. The value fell by 22% a day or so later when the loss-making nature of the venture was revealed, but that still left 78% to go before it reached its true value – of zero. The share price is now (15 April 2024) $27.35.

But Trump supporters are still buying the stock. It’s called a meme stock, one which is held afloat by a quasi-religious devotion to it.

Trust can lead us badly astray...

Paul Buckingham

4 April 2024