Some of the most famous companies of the 21st century, such as Uber and Airbnb, seem to be built upon the destruction of fences. Uber obsoleted taxi licenses and Airbnb the lengthy process of befriending the owner of a house where you’d like to live for a week. However, Uber and Airbnb didn’t merely destroy the fence. They acknowledged its use and built a surrogate. Uber gave drivers something else to lose: a 5-stars rating. Similarly, Airbnb introduced a two-way rating system and provided (limited) insurance to both home-owners and visitors. In fact, in a previous essay, I argued that Uber and Airbnb are Trust-As-A-Service businesses: for a fee, customers can buy trust in transactions with strangers. Chesterton's Fence
One component of the typical stock market cycle, “growth → bubble → crash”, is investors increasingly treating common-sense accounting practices as useless fences bounding the potential of stock prices. Those who do usually discover a few years later that such practices did have a purpose. Chesterton's Fence
Writer G. K. Chesterton noted that people react in two ways, when faced with a fence across a road whose use they do not know. Some move to break it down, while others wisely wait until they understand its use. After all, whoever built it must have had a reason. Tearing it down might have unforeseen consequences. The same applies to laws and institutions. We should be wary of calling out the uselessness of what we do not understand. Chesterton's Fence
Our world is full of Chesterton Fences: objects, institutions, and rituals apparently inefficient and yet effective. For example, in his book “Alchemy", Rory Sutherland explains how London taxi drivers have to spend years memorizing every single street. This seems useless and inefficient, especially in the age of GPS navigation. And yet, it has its use: it is an upfront cost designed to weed out unmotivated candidates who might later provide a degrading service. Chesterton's Fence