Trust among Internet Traders: A Behavioral Economics Approach

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Trust among Internet Traders: A Behavioral Economics Approach

Author Info

Gary E. Bolton
Elena Katok
Axel Ockenfels

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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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Publisher 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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This paper has been announced in the following NEP Reports:

NEP-ALL-2004-04-11 (All new papers)
NEP-CBE-2004-04-11 (Cognitive & Behavioural Economics)
NEP-NET-2004-04-11 (Network Economics)

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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.:

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Other versions:
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Other versions:
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Other versions:
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Full references

Cited by:
(explanations, 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.)

Gary E. Bolton & Axel Ockenfels, 2008. "Does Laboratory Trading Mirror Behavior in Real World Markets? Fair Bargaining and Competitive Bidding on EBay," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
Other versions:
- Gary E Bolton & Axel Ockenfels, 2007. "Does Laboratory Trading Mirror Behavior in Real World Markets? Fair Bargaining and Competitive Bidding on EBay," Working Paper Series in Economics 36, University of Cologne, Department of Economics. [Downloadable!]
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!]
Other versions:
- Gary E. Bolton & Axel Ockenfels, 2008. "The Limits of Trust in Economic Transactions - Investigations of Perfect Reputation Systems," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
Gary E Bolton & Claudia Loebbecke & Axel Ockenfels, 2007. "How Social Reputation Networks Interact with Competition in Anonymous Online Trading: An Experimental Study," Working Paper Series in Economics 32, University of Cologne, Department of Economics. [Downloadable!]
Other versions:
- Gary E. Bolton & Claudia Loebbecke & Axel Ockenfels, 2008. "How Social Reputation Networks Interact with Competition in Anonymous Online Trading: An Experimental Study," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]

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