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The Boundaries of Trust and Risk: The Quadratic Moderating Role of Institutional Structures

Author

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  • David Gefen

    (LeBow School of Management, Drexel University, Philadelphia, Pennsylvania 19104)

  • Paul A. Pavlou

    (Fox School of Business, Temple University, Philadelphia, Pennsylvania 19122)

Abstract

A prevalent assumption in the literature is that trust and risk are always relevant in online marketplaces, and that there is always a need to build trust and reduce risk irrespective of context. Challenging this assumption, this study seeks to identify the boundaries of the effects of trust and risk on transaction activity in the context of institutional structures in online marketplaces. The perceived effectiveness of institutional structures (PEIS), defined as the extent buyers believe that appropriate conditions are in place to facilitate transactions with sellers, sets the boundaries of trust and risk by moderating their effects on transaction activity in a quadratic (inverted-U) fashion. Specifically, at the lower boundary condition of PEIS (among buyers who believe institutional structures are ineffective), the high situational uncertainty they perceive should make these buyers unwilling to become vulnerable to sellers, thus rendering trust and risk immaterial to their decision making. Trust and risk should also be immaterial at the higher boundary condition of PEIS (among buyers who believe institutional structures are very effective), because the insufficient situational uncertainty makes trust and risk irrelevant to these buyers' decision making because of a lack of vulnerability. Only between these two boundary conditions (among buyers who perceive moderate levels of PEIS), and thus a moderate degree of situational uncertainty and vulnerability in the marketplace, should trust and risk have a significant effect on transaction activity. Data from 398 buyers on eBay's and Amazon's online marketplaces support the quadratic moderating role of PEIS on the effect of risk on transaction activity, but not on the effect of trust. Theoretical and practical implications on specifying the boundaries of the effects of trust and risk and understanding the direct and moderating role of institutional structures are discussed.

Suggested Citation

  • David Gefen & Paul A. Pavlou, 2012. "The Boundaries of Trust and Risk: The Quadratic Moderating Role of Institutional Structures," Information Systems Research, INFORMS, vol. 23(3-part-2), pages 940-959, September.
    • Handle: RePEc:inm:orisre:v:23:y:2012:i:3-part-2:p:940-959
    DOI: 10.1287/isre.1110.0395
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    References listed on IDEAS

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    Cited by:

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    5. Sullivan, Yulia W. & Kim, Dan J., 2018. "Assessing the effects of consumers’ product evaluations and trust on repurchase intention in e-commerce environments," International Journal of Information Management, Elsevier, vol. 39(C), pages 199-219.
    6. Martin, Kirsten, 2018. "The penalty for privacy violations: How privacy violations impact trust online," Journal of Business Research, Elsevier, vol. 82(C), pages 103-116.
    7. Lu, Baozhou & Yi, Xiaoyang, 2023. "Institutional trust and repurchase intention in the sharing economy: The moderating roles of information privacy concerns and security concerns," Journal of Retailing and Consumer Services, Elsevier, vol. 73(C).
    8. Xiao, Lin & Zhang, Yucheng & Fu, Bin, 2019. "Exploring the moderators and causal process of trust transfer in online-to-offline commerce," Journal of Business Research, Elsevier, vol. 98(C), pages 214-226.
    9. Tao Zhou & Yaobin Lu & Bin Wang, 2016. "Examining online consumers’ initial trust building from an elaboration likelihood model perspective," Information Systems Frontiers, Springer, vol. 18(2), pages 265-275, April.
    10. Malhotra, Neeru & Sahadev, Sunil & Purani, Keyoor, 2017. "Psychological contract violation and customer intention to reuse online retailers: Exploring mediating and moderating mechanisms," Journal of Business Research, Elsevier, vol. 75(C), pages 17-28.
    11. Alamoudi, Hawazen & Shaikh, Aijaz A. & Alharthi, Majed & Dash, Ganesh, 2023. "With great power comes great responsibilities – Examining platform-based mechanisms and institutional trust in rideshare services," Journal of Retailing and Consumer Services, Elsevier, vol. 73(C).
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    14. Neeru Malhotra & Sunil Sahadev & P. S. H. Leeflang & Keyoor Purani, 2021. "New Insights into e-Loyalty of Internet Banking Users in an Emerging Market Context: A Multilevel Analysis," Information Systems Frontiers, Springer, vol. 23(6), pages 1521-1536, December.
    15. Mariia Petryk & Michael Rivera & Siddharth Bhattacharya & Liangfei Qiu & Subodha Kumar, 2022. "How Network Embeddedness Affects Real-Time Performance Feedback: An Empirical Investigation," Information Systems Research, INFORMS, vol. 33(4), pages 1467-1489, December.
    16. Yili (Kevin) Hong & Paul A. Pavlou, 2014. "Product Fit Uncertainty in Online Markets: Nature, Effects, and Antecedents," Information Systems Research, INFORMS, vol. 25(2), pages 328-344, June.
    17. Robertson, Jeandri & Botha, Elsamari & Ferreira, Caitlin & Pitt, Leyland, 2022. "How deep is your love? The brand love-loyalty matrix in consumer-brand relationships," Journal of Business Research, Elsevier, vol. 149(C), pages 651-662.
    18. Koutroumpis, Pantelis & Leiponen, Aija & Thomas, Llewellyn D W, 2017. "The (Unfulfilled) Potential of Data Marketplaces," ETLA Working Papers 53, The Research Institute of the Finnish Economy.
    19. Faqih, Khaled M.S., 2022. "Internet shopping in the Covid-19 era: Investigating the role of perceived risk, anxiety, gender, culture, and trust in the consumers’ purchasing behavior from a developing country context," Technology in Society, Elsevier, vol. 70(C).
    20. Mohamed Fathy Agina & Nadir Aliane & Osman El Sawy & Hazem Ahmed Khairy & Sameh Fayyad, 2023. "Risks in Relation to Adopting Airbnb Accommodation: The Role of Fear of COVID-19," Sustainability, MDPI, vol. 15(6), pages 1-19, March.
    21. Eric Schniter & Timothy Shields, 2013. "Recalibrational Emotions and the Regulation of Trust-Based Behaviors," Working Papers 13-16, Chapman University, Economic Science Institute.
    22. Paolo Spagnoletti & Federica Ceci & Bendik Bygstad, 2022. "Online Black-Markets: An Investigation of a Digital Infrastructure in the Dark," Information Systems Frontiers, Springer, vol. 24(6), pages 1811-1826, December.
    23. Tamara Dinev & Allen R. McConnell & H. Jeff Smith, 2015. "Research Commentary—Informing Privacy Research Through Information Systems, Psychology, and Behavioral Economics: Thinking Outside the “APCO” Box," Information Systems Research, INFORMS, vol. 26(4), pages 639-655, December.

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