But the bastard has 55 euros: they have their 10 euros from the morning, plus they get the money from the public good. That person betrayed the public good for their own selfish benefit.
But here’s the question: what happens the next day? What do you think?
Nobody puts any money in. And this is the situation, this is a game with two equilibria. There’s one equilibria that is good: everybody participates, everybody benefits. This is what a good society is: we all put money in, volunteers, people participate, people help, and everybody benefits.
But when somebody starts betraying the public good, what happens? More and more people betray the public good. There’s no equilibria where five people participate and five people don’t. It’s either everybody or nobody. And the nobody participating is a terrible equilibria.
But there’s another point. The good equilibria, the one where everybody participates, is very fragile. It’s enough for one person to betray the public good, and everything deteriorates.
The bad equilibria is very stable. Imagine that nobody puts money, nobody puts money, then one day three people put money in.
What happened the next day? Does it go back up? No. Goes back to zero. And that for me is the issue with trust.
When we have trust, we can create the good equilibria, but then things can really deteriorate, and we all suffer.
So now the question is: How do we increase trust? How do we engineer things in society to increase trust? I’ll give you a couple of examples.
The first example is an example from an insurance. Now think about insurance. We have an insurance company and we have customers. Customers pay the insurance company, they pay the insurance company.
At some point, something bad happens. And the customers want what? They want the insurance company to pay them for their damage. And the insurance company wants what? Not to pay, right? It’s very simple. There’s a pot of money; if they pay more to the customers, they get to keep less.
As customers, we know that the insurance company doesn’t want to pay us. So what do we do? We exaggerate, we inflate our claim. And the insurance company knows that we inflate our claim. So they make it difficult and complex and so on.
Now if you think about that system, it’s a system that is based on conflicts of interest – the insurance company prefers not to pay than to pay – and mistrust. Terrible idea. Who would design a system like this?
So at Lemonade – Lemonade is a young insurance company – they said, “Let’s solve this problem.” How can we solve this problem? Let’s change it from a two-player game to a three-player game. How does this help? Here’s how it works.
When you join Lemonade, imagine all of us join Lemonade, you get to pick a charity you really love; let’s say the World Wildlife Fund. We all pick a charity we love. We pay, every month we pay Lemonade, we pay for the insurance. Lemonade takes a fixed amount and pays back claims, and if there’s money leftover in the pool for all of us, it goes to the charity.
So now Lemonade takes itself out of the conflicts of interest. They say, “We don’t care if we pay you or not; it’s a game between you and the charity. And if you now cheat us, who are you cheating? Your favorite charity.”
Lemonade started a few years ago. About two weeks after we’d started, the first interesting email comes in. That email says, “You insured my apartment. I told you somebody stole my laptop. You paid me. It turns out I just misplaced my laptop; nobody stole it. I made a mistake. How do I return the money?”
That was the email.
On that day, I called all my friends in all the insurance companies, and I asked them: How do you deal with such cases? They never happened. This is, for me, an amazing starting point. It says that if you create a system that creates trust and you trust people, there’s a good chance trust will come back.
One more trick about increasing trust. Imagine I’m a waiter. I come to four people, and I say to the first person, “What would you like?”
And that person says, “I want the fish.”
And I say, “Ah, the fish is not so good today. Don’t take the fish, take the chicken. The chicken is cheaper and better. Cheaper and better.”
And then we measure how much the second person, the third person, and the fourth person take my advice and how much the whole table takes my advice for what wine to get. That’s case number one.
Case number two. I come to the first person, “What would you like?”
He says, “I want the fish.”
I say, “The fish is not so good today; take the lobster. It’s only three times more expensive, but it’s amazing.”
How likely are the second, third, and fourth person to take my advice now? Not at all.
How much are they likely to take my advice for wine? Not at all.
What’s the difference between the first waiter and the second waiter? The difference is that the first waiter showed us that they prefer our benefit to their benefit. There was opportunity to say, “Take something better and cheaper.”
The second waiter, we don’t know. Maybe that lobster is the most amazing in the world, maybe we’ll dream about it until the day we die, maybe it’s a wonderful decision, but we will never know. We will never know if they work for themselves or for us.