The trust economy and why it’s okay to get a bad rating

Chances are, we tell our children, or we were told when we were young, not to talk to strangers. Yet spending the night in strangers’ homes and jumping into strangers’ cars are becoming the new norm. Collaborative consumption marketplaces like Uber and Airbnb are teaching us to let go of our stranger-danger biases and learn to trust. These peer-to-peer-based services harness the power of technology to build millions of real human connections and have created a new demographic of micro-entrepreneurs, resulting in a rising trust economy where trust has a real-world value.

Reviews and rating systems are central to the way this economy works, and as these marketplaces proliferate, lessons can be learned about how trust is built online, and how reviews and ratings impact your business.

Entering the third trust wave: people-powered marketplaces

Spending the night at a stranger’s home instead of a hotel may be a newer concept, but collaborative consumption—sharing an asset, either for free or for something else of equal value, so that each person doesn’t have to purchase that asset on his or her own—isn’t new. In fact, it’s a really old concept. During the time of the barter system, for example, Native American tribes would trade goods that were considered equal in value, like baskets and fish. The barter system was based upon trusting each other to make fair trades—otherwise, the source of supply might dry up. Today’s collaborative consumption marketplaces, by contrast, rely on unlocking the power of technology to foster trustworthy human connections.

“The secret source behind collaborative consumption marketplaces like Airbnb isn’t the inventory or the money. It’s using the power of technology to build trust between strangers…it’s about empowering people to make meaningful connections…by engaging in marketplaces…that are built on personal relationships versus empty transactions,” says Rachel Botsman, a recognized expert on how collaboration and trust enabled by digital technologies will change the way we live, work, bank and consume, in her TED Talk, “The currency of the new economy is trust.”

[Read also: The psychology of rating: it’s hard, but better, to be honest]

Online trust has evolved from sharing information publicly online, on social platforms, to handing over our credit card and financial data, she explains. “Now we’re entering the third wave: connecting trustworthy strangers to create all kinds of people-powered marketplaces.”

My neighbor, Colleen, was one of the first three Airbnb hosts in our city, and she says that building new human connections is her favorite aspect of being a part of Airbnb. Colleen has been a host for over 7 years and has welcomed strangers into her home over 400 times. Every time a new person stays with her, she marks where in the world they came from on a map—a visual representation of the human connections she’s made.

“I keep the map where my guests can see it, so it feels special when I add a pin for them. For people who stay at my home more than once, I replace the pin with a flag. One of my guests told me, ‘I want a flag!’ The flags are a small incentive for them to come back because my favorite part of being a host is building new relationships. I especially love meeting people from other cultures,” says Colleen.

[Read also: The human approach to building better customer satisfaction surveys]

Reputation as the measure of trust

Trusting strangers to stay in Colleen’s home without vandalizing it, and creating a sense of safety for guests as they enter her home, is paramount to the agreement between Colleen and her guests. For some, these leaps of trust may feel too large. Airbnb conducted an interesting study with Stanford University on what makes us trust a stranger. Researchers first examined how likely individuals are to trust each other based on similarities, such as age or location. According to Airbnb co-founder Joe Gebbia, what they initially found wasn’t surprising: we are more likely to trust people who are similar to us and less likely to trust those with more obvious differences. However, what Gebbia learned next, did surprise him. The study revealed that reputation, through the form of reviews, overpowers similarity when it comes to trust. People were more likely to trust strangers that had at least 10 positive reviews than strangers who were similar to them. In short, collaborative consumption marketplaces are able to build trust online by designing a reputation management system fueled by reviews.

The study revealed that reputation, through the form of reviews, overpowers similarity when it comes to trust. People were more likely to trust strangers that had at least 10 positive reviews than strangers who were similar to them.

“In a similar way that companies often use some kind of credit rating to decide whether to give you a mobile plan, or the rate of a mortgage, marketplaces that depend on transactions between relative strangers need some kind of device to let you know that Sebastian and Chris are good eggs, and that device is reputation. Reputation is the measurement of how much a community trusts you,” says Botsman.

What’s even more interesting is that for micro-entrepreneurs like Colleen, reputation has actual worth. She’s what Airbnb calls a Superhost. To gain Superhost status, you have to maintain at least 80 percent five-star reviews. With that reputation, comes real benefits that result in more money in the bank, or being listed on the first page of the feed or search as opposed to the fifth.

“As an Airbnb user, you don’t scroll past the first couple pages when you’re looking for someplace to stay. People also know if a host is highly ranked because your reputation on the platform is public. If someone gives me a poor rating, it has a direct impact on my bookings,” says Colleen. “When I look for places to stay when I am traveling myself, I filter for Superhosts. If someone doesn’t have that status, I won’t stay at their place, especially since as a host, I know that it’s really not that hard to achieve if you follow the Golden Rule and treat your guests as you want to be treated.”

On most peer-to-peer platforms, reviews work both ways. Airbnb hosts can rate their house guests, just like Uber drivers can review their passengers. “There was only one couple that I gave a poor review, because they left my place filthy, with no signs that they had made an attempt to clean up. Other hosts will certainly be reluctant to book them when they realize how the space is treated,” says Colleen.

Botsman predicts that our reputation on platforms like Airbnb will eventually have an impact outside the platform itself and may become more important than our credit score. “I envision a real-time stream of who has trusted you, when, where and why, your reliability on TaskRabbit, your cleanliness as a guest on Airbnb, the knowledge that you display on Quora or Tripovo, they’ll all live together in one place, and this will live in some kind of reputation dashboard that will paint a picture of your reputation capital,” she says.

[Read also: How to earn your stars and be a good Airbnb customer]

Trust is a loop: why reputation matters for businesses

Trust is important for more than micro-entrepreneurs like Colleen. The reputation capital generated through reviews directly impacts businesses, too. A Zendesk study showed that 88 percent of customers are influenced by a company’s reviews when making a purchase decision, and research conducted by the Spiegel Research Center indicated that simply displaying reviews on your website can increase conversion rates by 270 percent.

A Zendesk study showed that 88 percent of customers are influenced by a company’s reviews when making a purchase decision, and research conducted by the Spiegel Research Center indicated that simply displaying reviews on your website can increase conversion rates by 270 percent.

According to William Zame, a Distinguished Professor of Economics and Mathematics at UCLA and Co-Editor of Economic Theory and Associate Editor of Theoretical Economics: “Trust is a loop. Firms care about their reputation because consumers care about the reputation of firms.”

So, how can prioritizing your reputation help your business grow?

It all goes back to the power of human connection. Reviews, customer testimonials, and case studies act as social proof for your business. Real human validation helps potential customers trust your product or service by showing them that it has been legitimized by other people. Verification from others can even influence consumers’ purchase decisions more than offering discounts.

Reviews also provide a kind of social proof for Google, when it comes to your search engine optimization (SEO) health. Google evaluates your business’ trustworthiness by looking for signals to decide how to rank your website. Noteworthy review sites like Yelp help prove to Google that people have interacted with your website and that your business actually exists. As a result, Google grants your site better visibility. What this means is that reviews are tied not only to consumer purchasing decisions but to how much visibility your website gets when people search for topics related to your industry. A study by Yotpo looked at the impact of adding customer reviews to businesses’ websites over the course of 9 months and found that Google organic page views increased from around 5.5k a month to 8k a month.

Reviews also generate customer data that can help you turn feedback into action. Many customers will be happy to provide you with feedback if you just ask for it. Almost 80 percent of reviews originate from follow-up emails asking shoppers to review their experience, according to another study by the Spiegel Research Center.

[Read also: Customize your CSAT survey]

But how trustworthy are online reviews?

Of course, we can’t believe everything we read online. Even when reviews are trustworthy, they can still be skewed. “I suspect people trust online reviews too much,” says professor Zume, who explained that there are many reasons to post an online review that include rewarding a firm, punishing a firm, helping others (altruism), or encouraging others to post online reviews. “But these reasons do not necessarily lead to an unbiased sample of consumers’ experiences,” he says. “In particular, consumers who have had ‘normal’ experiences have less incentive to post reviews, so reviews tend to be bi-modal.”

He went on to explain that reviews can be skewed for other reasons, too: “Online reviews on eBay are notoriously skewed because firms have a way to punish users who post negative reviews (so a 95 percent positive rating on eBay is actually pretty bad). Online reviews on Amazon are becoming less useful because firms can now pay reviewers by providing free or discounted merchandise.”

Some companies are even paying for fake reviews written by bots, instead of by customers that have actually tried the product, even if it was sent to them for free. The Federal Trade Commission (FTC) recently imposed a judgment of $12.8 million against a weight-loss supplement company that published fake reviews, prohibiting the company from making weight-loss statements without scientific evidence grounded in clinical testing.

Some companies are even paying for fake reviews written by bots, instead of by customers that have actually tried the product, even if it was sent to them for free.

Ultimately, though, consumers are smart. When reviews appear to be too good to be true, consumers lose trust and sense that it could be a scam—the Spiegel Research Center found that reviews in the 4.2 – 4.5 range are more likely to positively impact purchase decisions than five-star ratings. Customers crave human feedback, and perfect reviews are a sign that they were written by bots rather than people with real thoughts and feelings. Negative reviews can hurt, but in moderation, they authenticate your business. A bad review here and there can actually make positive reviews more trustworthy because they indicate that your reviews are real.

We’re humans after all and know that very few things are without a flaw—or the perfect fit for everyone.

But often times, reviews—and trustworthy behavior—do help us find our perfect fit within a vast, global marketplace. Some of Colleen’s guests send her holiday cards. One guest that she’s hosted more than eighty times even shares his season baseball tickets with her and her husband. When he’s in town, the three of them go together. “He is like a friend at this point, we’ll have a glass of wine together,” Colleen says.

This is the shape some of these personal relationships can take, which in turn generate repeat visits through Airbnb. So what do the reviews say about your business and trustworthiness—and what can you do about it?

Hannah Wren is an Email Marketing Specialist using customer data to develop multi-touch nurture programs for several audiences across the customer lifecycle, from onboarding and education to conversion and retention. Her hobbies include trying new foods and thinking about the human impact of technology. Connect with her on LinkedIn.