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How Effective are Online Reputation Mechanisms?

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Author Info
Gary Bolton
Elena Katok
Axel Ockenfels

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Abstract

Online reputation - "feedback" - mechanisms aim to mitigate the moral hazard problems associated with spatially distant exchange among strangers by providing traders with the type of information available in small groups, where members are frequently involved in one another's dealings. We compare trading in a market with feedback to a market without, as well as to a market in which the same people interact with one another repeatedly (partner market). We find that, while the feedback mechanism induces quite a substantial improvement in transaction efficiency, it also exhibits a kind of public goods problem in that, unlike the partners market, the benefits of trust and trustworthy behavior go to the whole community and are not completely internalized. We discuss the implecations of this perspective for improving these systems.

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Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2002-25.

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Date of creation: May 2002
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Handle: RePEc:esi:discus:2002-25

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Blount, Sally, 1995. "When Social Outcomes Aren't Fair: The Effect of Causal Attributions on Preferences," Organizational Behavior and Human Decision Processes, Elsevier, vol. 63(2), pages 131-144, August. [Downloadable!] (restricted)
  2. Dan Ariely & Axel Ockenfels & Alvin E. Roth, 2002. "An Experimental Analysis of Ending Rules in Internet Auctions," Papers on Strategic Interaction 2002-47, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
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  1. Gary Bolton & Elena Katok & Axel Ockenfels, 2002. "Bridging the Trust Gap in Electronic Markets," Papers on Strategic Interaction 2002-26, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  2. Gary E. Bolton & Elena Katok & Axel Ockenfels, 2004. "Trust among Internet Traders: A Behavioral Economics Approach," Working Paper Series in Economics 5, University of Cologne, Department of Economics. [Downloadable!]
  3. Gary E Bolton & Axel Ockenfels, 2007. "The Limits of Trust in Economic Transactions - Investigations of Perfect Reputation Systems," Working Paper Series in Economics 33, University of Cologne, Department of Economics. [Downloadable!]
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  4. Dirk Engelmann & Urs Fischbacher, 2003. "Indirect Reciprocity and Strategic Reputation Building in an Experimental Helping Game," CERGE-EI Working Papers wp215, The Center for Economic Research and Graduate Education - Economic Institute, Prague. [Downloadable!]
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  5. Axel Ockenfels & Alvin E. Roth, 2003. "Late and Multiple Bidding in Second Price Internet Auctions: Theory and Evidence Concerning Different Rules for Ending an Auction," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  6. Gary E. Bolton & Axel Ockenfels, 2005. "The Influence of Information Externalities on the Value of Reputation Building - An Experiment," Working Paper Series in Economics 17, University of Cologne, Department of Economics. [Downloadable!]
  7. David Masclet (CREM - CNRS) & Thierry Pénard (CREM – CNRS), 2006. "Pourquoi évaluer son partenaire lors d’une transaction à la eBay ? une approche expérimentale," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 200620, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS. [Downloadable!]
  8. Gary E Bolton & Axel Ockenfels, 2007. "Information Value and Externalities in Reputation Building - An Experimental Study," Working Paper Series in Economics 35, University of Cologne, Department of Economics, revised 01 Aug 2008. [Downloadable!]
  9. Axel Ockenfels, 2002. "Reputationsmechanismen auf Internet-Marktplattformen - Theorie und Empirie -," Papers on Strategic Interaction 2002-46, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  10. Dan Ariely & Axel Ockenfels & Alvin E. Roth, 2002. "An Experimental Analysis of Ending Rules in Internet Auctions," Papers on Strategic Interaction 2002-47, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
    Other versions:
  11. John Kennes & Aaron Schiff, . "Simple Reputation Systems," Discussion Papers 05-21, University of Copenhagen. Department of Economics, revised Nov 2005. [Downloadable!]
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  12. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, vol. 92(4), pages 1093-1103, September. [Downloadable!]
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  13. Tim Hoppe & Abdolkarim Sadrieh, 2007. "An Experimental Assessment of Confederate Reserve Price Bids in Online Auction," FEMM Working Papers 07011, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management. [Downloadable!]
  14. Friederike Mengel & Axel Ockenfels & Werner Güth, 2006. "The Dynamics of Trust and Trustworthiness on EBay. An Evolutionary Analysis of Buyer Insurance and Seller Reputation," Papers on Strategic Interaction 2006-03, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
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