Covey on the Economics of Trust

Covey on p.13 of The Speed of Trust. The One Thing that Changes Everything (New York: Free Press, 2006), gives two formulas that he says takes the intangible and unquantifiable to the tangible and quantifiable.

His assumption is that trust affects two outcomes: speed and cost. According to Covey's formulas,

As trust diminishes, the speed of transactions goes down and the cost up.
As trust increases, the speed of transactions goes up and the cost down.

So, trust is positively related to speed and negatively related to cost.

I saw this disgustingly documented when I was practicing real estate in Philadelphia. In the mid-200s, we had transactions moving along briskly. Fast forward to 2008, the speed of transactions had dropped by a factor of 2 to 3, and the cost of transactions in terms of time and money has increased dramatically. So based on the amount of sales you needed would have taken you 2-3 times as long to realize. The sales you would normally do in a year would take you 2-3 years to achieve.

Why? Trust had washed out of the system.

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