Authors: Daniel Obermeier, Joachim Henkel

Trust is generally considered a precondition to enter relationships with strangers. Yet, it becomes dispensable if a party can ex-ante comprehend and ascertain the mechanisms that determine the future behavior of the other party; in that case, trust can be replace with certainty obtained by deductive logic. We refer to this certainty as deductive certainty and extend the theory of trust formation by developing a three-layer model of initial trust formation comprising deductive certainty, deduction-related trust, and inductive trust. We test our model using a sample of 536 smart contracts deployed on the Ethereum blockchain, a global, open-source platform for decentralized applications. Smart contracts are immutable, publicly visible, and automatically executed computer protocols that allow to ex-ante verify the outcome of a transaction and thus hold the promise of facilitating “trust-free” relationships based on deductive certainty. With a moderated regression model, we test which trust layer is responsible for trust formation. Our findings suggest that smart contracts on a blockchain do not remove the necessity of trust from relationships but introduce deduction-related trust as a new type of trust that reinforces classical inductive trust cues. With this work, we contribute to theory by linking epistemological considerations with theory on trust formation.

Joachim Henkel is a Professor of Technology and Innovation Management and Vice Dean of Research at TUM School of Management, Technical University of Munich. He received his Habilitation in Management from Ludwig Maximilian University of Munich, a Doctorate in Economics from University of Mannheim, and a Diplom (M.Sc.) in Theoretical Physics from University of Bonn. After his Ph.D., he worked for two years with the consulting firm, Bain & Company. His research focuses on digitalization, patent management, standards, technology acquisitions, open innovation, and value capture. He published his work among others in Academy of Management Discoveries, Harvard Business Review, Journal of Economics and Management Strategy, RAND Journal of Economics, Research Policy, and Strategic Management Journal. Joachim Henkel is an Associate Editor with Academy of Management Discoveries, and serves on the editorial review boards of Industrial and Corporate Change, Innovation: Organization & Management, and Research Policy. He was a visiting scholar at University College London, MIT Sloan School of Management, Harvard Business School, and Singapore Management University. He consults regularly for firms in the ICT industries.