Jer979's Blog: The Challenge of a Trusted Network…

Friday, February 27, 2009

The Challenge of a Trusted Network…

Blogreader Steve rasied some great questions in his comment on my post: Still not sure about Facebook?

He writes:

When I read your piece about the Facebook referrals for your refi it triggered a question in my mind: how does the Bernie Madoff affair fit into your theory of networking?

It seems that Madoff’s entire Ponzi scheme was built on a foundation of social networking; it worked because of what I suppose you would call Madoff’s “personal brand.”

If you networked in the elite financial circles that fed Madoff’s scheme, and solicited investment advice (as you did for the refi), I expect that you would have received enthusiastic recommendations of Bernie from trusted networking partners. In fact, when the scheme was first uncovered and I criticized institutional investors for their failure to vet Madoff’s operation, I had people argue that the word of mouth references in themselves constituted reasonable due diligence.

So is there a danger that the very confidence provided by the network relationship can itself lead to the proliferation of false and even harmful information?

Offhand, on a more benign level, I think of all those well-meaning people who receive emails about some seemingly important issue and pass them along to their friends (without checking Snopes first!).

Most people, even some very savvy ones, tend to trust the information because it comes from a known source.

Naturally, in your refi case I assume you are checking out the lenders independently, and the referrals just give you some anecdotal data on customer service and reliability, but it still begs the question of where to draw the line between information and confidence.

I’m very curious as to your reaction.

As far as I can tell, social networks, Word of Mouth, etc. are generally trusted because they generally work and yield good experiences. Maybe over 90% of the time, but like anything, e.g. investing in the stock market, there are risks and when we rely on our network, we assume those risks.

Perhaps the answer is to make sure that you “don’t put all your eggs in one basket” on anything, lest that referral be one of the times when the network will fail you.

Thoughts?

One of the bloggers I read, Chris Brogan, is coming out with a book called “Trust Agents,” where, I believe, he will be diving into this question more deeply.

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