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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.

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Bibliographic Info

Paper provided by University of Cologne, Department of Economics in its series Working Paper Series in Economics with number 5.

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Length: 25 pages
Date of creation: 25 Feb 2004
Date of revision:
Publication status: Published in Analyse und Kritik, 2004, 26, 185-202
Handle: RePEc:kls:series:0005

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References

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  1. Charness, Gary & Rabin, Matthew, 2001. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt4qz9k8vg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
  3. Offerman, Theo, 2002. "Hurting hurts more than helping helps," European Economic Review, Elsevier, vol. 46(8), pages 1423-1437, September.
  4. Gary E. Bolton & Rami Zwick & Elena Katok, 1998. "Dictator game giving: Rules of fairness versus acts of kindness," International Journal of Game Theory, Springer, vol. 27(2), pages 269-299.
  5. John Duffy & Jack Ochs, 2004. "Cooperative Behavior and the Frequency of Social Interaction," Levine's Bibliography 122247000000000108, UCLA Department of Economics.
  6. Gary Bolton & Jordi Brandts & Axel Ockenfels, 1998. "Measuring Motivations for the Reciprocal Responses Observed in a Simple Dilemma Game," Experimental Economics, Springer, vol. 1(3), pages 207-219, December.
  7. Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 63-80, January.
  8. Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982. "Rational cooperation in the finitely repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 27(2), pages 245-252, August.
  9. M. Rabin, 2001. "Incorporating Fairness into Game Theory and Economics," Levine's Working Paper Archive 511, David K. Levine.
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Citations

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Cited by:
  1. 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.
  2. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc.
  3. Axel Ockenfels, 2008. "Marktdesign und Experimentelle Wirtschaftsforschung," Working Paper Series in Economics 41, University of Cologne, Department of Economics.

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