Of course, the value of trust is context specific. 

But even so, how do you put a value on trust? 

Douglas Hubbard, in his book, How to Measure Anything: Finding the Value of Intangibles in Businessapproaches the subject of putting a value on something by asking, “What does that look like?”

Let’s start with an example for understand the value of trust in a social situation, and then turn to understanding the value of trust in a commercial situation.

Example 1: Trust in a Social Situation

Suppose you’re sitting in a coffee shop working on your laptop, and you have to go to the bathroom. Do you trust the people in the coffee shop not to steal your computer while you step away? What’s the value of trust in this situation? 

Scenario 1: Trust Everyone 

Suppose everyone can be trusted. In this case, you simply leave your computer unattended while you step away. You don’t have to take your computer with you, and you don’t lose your table to another customer. 

Scenario 2: Trust Your Neighbor

Suppose you trust the person sitting at the table next to you to keep an eye on your computer while you step away. You don’t have to take your computer with you, and you don’t lose your table. As a bonus, you benefit from having a friendly social interaction –asking your neighbor to watch your computer for a few minutes – not to mention that the person you’ve trusted with your computer benefits from having a sense of being trusted and being able to do you a favor (“The Ben Franklin effect is a psychological phenomenon in which people like someone more after doing a favor for them”). 

Scenario 3: Trust No One

If you can’t trust anyone, then you have to take your computer with you when you step away, and you potentially lose your table to another customer. 

Value of Trust

In this example, the value of trust is not having to incur the costs of taking your computer with you when you step away and potentially losing your table. To put a dollar value on that, we could ask, “How much would you be willing to pay to avoid those costs?” That amount is the value to you of trust in this situation.

More generally, in this and similar such cases, a lack of trust involves added costs that wouldn’t have to be incurred if there were trust. These avoided costs generally consist of the costs of extra measures that have to be taken to avoid loss or harm or damage of some sort due to the loss of trust.

Additionally, not engaging with the person at the table next to you because you don’t trust him or her shows how lack of trust tends to inhibit opportunities for both social activity and the generation of goodwill.

Figure 1

Another example of all three types of costs associated with lack of trust – avoidable costs, loss of social activity, and loss of goodwill – is your neighbor refusing to lend you, say, his lawnmower because he doesn’t trust you to return it. In this case, the avoidable cost to you of no trust is your having to buy your own lawnmower, not to mention the ill-will on your part generated after your neighbor refuses the loan.

Figure 2

Example 2: Trust in a Commercial Transaction

As society has developed, so too have all the nuances associated with so many transactions. With trust, each party to a transaction trusts the other to act reliably, honestly, competently, and with good intention toward their common goals.^[1] Without trust, they cannot rely on any of these.  And once you start breaking it down, it quickly becomes clear just how fundamental the issue of trust becomes for so many different facets of our interactions. 

Let’s take a basic example to illustrate. What’s the value of trust when entering a business transaction, say a product purchase. Of course, the greater is the value of the product being purchased, the greater are the stakes, and thus the greater will be the value of trust.

Does the Seller Trust the Buyer? 

Start with the seller. What happens when the seller doesn’t trust the buyer?

• Consumers value being able to pay on credit. If you give the buyer the product right now, do you trust him/her to follow through and send payment in, say, 30 or 60 days? If not, you should insist on payment upfront, which could constrain the growth of your company.
• Consumers value being able to return products if the products don’t meet their needs. However, “bad faith” returns impose excessive costs on sellers. Do you trust the buyer to only make “legitimate” returns? If not, you should limit or not allow returns, which could constrain the growth of your company.
• If some problem arises, and you act in good faith to resolve that problem, do you trust the buyer to also act in good faith? If the customer does not act in good faith, he or she could respond to a problem by smearing your name, which would probably impact your reputation and/or constrain the growth of your company. Without trust, you should consider constraining the transaction or refusing to sell to the buyer, causing you lost business.

Of course, there are plenty of other issues, but the general pattern here is that when sellers trust buyers, they offer more value-enhancing services to buyers, which they don’t offer in the case without trust (because those services may backfire). And when sellers create more value for buyers they can either charge higher prices and/or generate greater sales volumes and/or greater buyer loyalty. In short, with more trust, there’s greater transactional activity and greater transactional value to both buyers and sellers than there is when there’s less trust.

Does the Buyer Trust the Seller?

Now turn to the buyer. What happens when the buyer doesn’t trust the seller?

• Buyers value products that are safe to use. Does the buyer trust that the seller’s product is safe to use? If not, then the buyer would only be willing to pay less for the product, if not altogether refrain from purchasing the product, leading to lower sales.
• Buyers value products that are well-made. Does the buyer trust that the seller’s product is well made? If not, then the buyer would only be willing to pay less for the product, if not altogether refrain from purchasing the product, leading to lower sales.
• Buyers value products that provide good value. Does the buyer trust the seller to price his or her products appropriately? If not, then the buyer would only be willing to buy fewer, if any, products, leading to lower sales.

Again, there are many other issue, but the pattern here is that when buyers trust sellers, they’re willing to pay higher prices and buy more products than they are when there’s less trust. As with the case of sellers trusting buyers, then, with more trust, there’s greater activity and greater transactional value to both buyers and sellers than when there’s less trust.

Perhaps more importantly, when buyers don’t trust sellers, buyers are forced to focus too much attention on lower level activities – trying to assess product safety and quality – rather than being able to spend their time and energy on higher level activities – finding the right products to suit their needs. In a low-trust world, this diversion of resources away from what truly matters decreases the value to consumers of buying and using the products. In contrast, when buyers and sellers act reliably, honestly, competently, and with good intention toward each other, sellers focus on providing higher quality products that provide more value to consumers, and consumers focus on finding the right products to suit their needs, creating more productive activity by both sellers and buyers, greater quality and sophistication, and thus greater value for everyone.

References 

^[1] Mayer RC, Davis JH, & Schoorman FD. (1995). An integrative model of organizational trust. Academy of Management Review, 20(3), 709–734. https://doi.org/10.5465/amr.1995.9508080335