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Trust among Internet Traders: A Behavioral Economics Approach

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  • Gary E. Bolton
  • Elena Katok
  • Axel Ockenfels

Abstract

Standard economic theory does not capture trust among anonymous Internet traders. But when traders are allowed to have social preferences, uncertainty about a seller's morals opens the door for trust, reward, exploitation and reputation building. We report experiments suggesting that sellers' intrinsic motivations to be trustworthy are not sufficient to sustain trade when not complemented by a feedback system. We demonstrate that it is the interaction of social preferences and cleverly designed reputation mechanisms that solves to a large extent the trust problem on Internet market platforms. However, economic theory and social preference models tend to underestimate the difficulties of promoting trust in anonymous online trading communities.

Suggested Citation

  • 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.
    • Handle: RePEc:kls:series:0005
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    References listed on IDEAS

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    5. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
    6. Duffy, John & Ochs, Jack, 2009. "Cooperative behavior and the frequency of social interaction," Games and Economic Behavior, Elsevier, vol. 66(2), pages 785-812, July.
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    8. Gary E. Bolton & Rami Zwick & Elena Katok, 1998. "Dictator game giving: Rules of fairness versus acts of kindness," International Journal of Game Theory, Springer;Game Theory Society, vol. 27(2), pages 269-299.
    9. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
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    11. Offerman, Theo, 2002. "Hurting hurts more than helping helps," European Economic Review, Elsevier, vol. 46(8), pages 1423-1437, September.
    12. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
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    Citations

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    Cited by:

    1. Axel Ockenfels, 2009. "Marktdesign und Experimentelle Wirtschaftsforschung," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 10(s1), pages 31-53, May.
    2. Bolton, Gary E. & Ockenfels, Axel, 2014. "Does laboratory trading mirror behavior in real world markets? Fair bargaining and competitive bidding on eBay," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 143-154.
    3. Huimin Gu & Tingting (Christina) Zhang & Can Lu & Xiaoxiao Song, 2021. "Assessing Trust and Risk Perceptions in the Sharing Economy: An Empirical Study," Journal of Management Studies, Wiley Blackwell, vol. 58(4), pages 1002-1032, June.
    4. Yuan-Chu Hwang & Soe-Tsyr Yuan, 2009. "Ubiquitous collaborative iTrust service: Exploring proximity collective wisdom," Information Systems Frontiers, Springer, vol. 11(1), pages 43-60, March.
    5. Hisashi Ohtsuki & Yoh Iwasa & Martin A Nowak, 2015. "Reputation Effects in Public and Private Interactions," PLOS Computational Biology, Public Library of Science, vol. 11(11), pages 1-11, November.
    6. 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.
    7. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc.
    8. Kas, Judith & Delnoij, Joyce & Corten, Rense & Parigi, Paolo, 2022. "Trust spillovers in the sharing economy: Does international Airbnb experience foster cross‐national trust?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 21(3), pages 509-522.
    9. Fehrler, Sebastian & Przepiorka, Wojtek, 2016. "Choosing a partner for social exchange: Charitable giving as a signal of trustworthiness," Journal of Economic Behavior & Organization, Elsevier, vol. 129(C), pages 157-171.
    10. Gary Bente & Thomas Dratsch & Kai Kaspar & Tabea Häßler & Oliver Bungard & Ahmad Al-Issa, 2014. "Cultures of Trust: Effects of Avatar Faces and Reputation Scores on German and Arab Players in an Online Trust-Game," PLOS ONE, Public Library of Science, vol. 9(6), pages 1-7, June.

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