Trust CAN Possibly Be Good

This is the eighth in my series of Suit Yourself essays.

Frankly, I don’t understand why trust is so hard for people to come by. The cost-benefit analysis of distrust is not compelling.

Consider the following parable. You can spend your whole life sure that someone is going to steal your wallet and approach every encounter with misgiving, frame every relationship with suspicion, and protect the wallet as a paramount priority. People won’t respond well to this, so you’ll have incurred enormous cost and missed lots of opportunities even if you do manage to hang on to the wallet.

Alternatively, you can recognize that wallet theft is a possibility and take sensible precautions, but still approach encounters and frame relationships with trust instead of suspicion. People will respond very well to this, and you’ll still likely hang on to the wallet. Even if it gets stolen, don’t the cost and aggravation of dealing with that specific instance pale in comparison to the cost and aggravation of constantly worrying and suspecting everyone?

Why not trustingly expect the best? Why not presume other people are kind, capable and not out to get you – or at least give them the benefit of the doubt? Why not trust in your own instincts, and your right and responsibility to set your own priorities? Why not trust that sensible investments will pay off, and that the more you do to help make an organization great, the better off the organization, you, and everybody else involved? Why not believe that you get what you give and be generous? Why not face life optimistically?

Trust is inextricably woven together with optimism and generosity. To trust, you have to believe, or at least be willing to adopt as a guiding principle for your behavior, that there is plenty for everyone, that it’s possible (with effort) for everyone to win, and that it’s worth it to give others the gifts of your confidence and support.

I don’t find this an especially impractical or far-fetched choice of guiding principle. Is it really Pollyanna-ish or, worse, foolish a lá Candide to choose to approach the world, other people and your work environment expecting the best? Isn’t it instead brutish or monstrous to choose the contrary approach?

It’s a difficult, dangerous world, and it clearly doesn’t pay to be foolish or incautious. (If you leave that wallet out on the sidewalk while you mow the lawn, it will surely disappear.) It is not, however, naïve or foolhardy to be trusting. Good sense does not mandate distrust. Shaped by prudence and experience, trust will take you a lot farther than distrust.

It may simply be human nature to be exquisitely wary of bad things and to give them more weight and perhaps more credence than good things. But should we be over-weighting the bad, under-weighting the good, and behaving accordingly? I think not. I’m more inclined to think that too often we have rash reactions to how bad the bad would be if it occurred, without appropriately diluting that badness with the improbability of its occurrence.

There’s a concept in the accounting rules under the federal securities laws that’s helpful here. (Really!) Financial Accounting Standards Board Statement No. 5, boiled down, says that a company must accrue via a charge to income and also disclose a loss contingency if the amount of loss can be reasonably estimated and it is probable that the loss has been incurred. Even a very bad possibility need not be accrued for and disclosed if it is a remote eventuality.

For example, it’s certainly within the realm of possibility that a company’s factory will be struck by lightning or by an errant chunk of space garbage hurtling to earth. Were this to occur, the damage might well be catastrophic. Whether that damage is capable of reasonable estimation or not is disputable, but we can all agree that the magnitude would be big. Should this be accrued for and disclosed? No – because its likelihood of occurring is remote. A disclosure document full of truly remote risks like that would be impossible to complete thoroughly and it would be of very little use to the investing reader.

Similarly, approaching the world with distrust is a response to fear and perceived danger that is outsized relative to the actual likelihood of trouble. As we think about our experiences and plans, I think we overweight bad things without factoring in their relative likeliness. We assess the badness and give it the weight it would have for us if the bad thing actually occurred today. We don’t discount the badness by a realistic assessment of likelihood or timing. So when we do our cost-benefit analysis, we haven’t factored in all the costs correctly.

If someone were to decide to protect his wallet by staying home – doors and windows locked, scary dogs patrolling the perimeter – we would all agree that he had gone too far, that his protection was not in alignment with his risk. Well, I think the cost of distrust is also excessive relative to the risk that people or situations might be disappointing or treacherous or in some other way fall short of what we would like them to be.

Here's how - and why - to make trust your default:

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