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Reputation and Uncertainty in Online Markets: An Experimental Study

Author

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  • Sarah C. Rice

    () (School of Business, University of Connecticut, Storrs, Connecticut 06269)

Abstract

This paper employs a modified investment game to study how online reputation ratings are assigned, and thus how electronic reputations are formed in transactions where buyers and sellers interact anonymously. Of particular interest are the important questions of how online reputations evolve and how specific reputation information is interpreted by market participants. We vary the level of uncertainty in the transaction environment, and measure the effects of this manipulation on buyers' trust and their subsequent rating behaviors. We distinguish between a reputation mechanism and specific reputation information, finding the former has an association with the overall decision of whether to transact in the marketplace, while the latter shows significance in purchase decisions regarding specific sellers. We also find that aggregate reputation information is weighted differently than singular reputation information. Finally, we show that when reputations are increasingly noisy, buyers are less likely to react negatively to poor ratings and are more likely to give sellers the benefit of the doubt when seemingly uncooperative outcomes occur.

Suggested Citation

  • Sarah C. Rice, 2012. "Reputation and Uncertainty in Online Markets: An Experimental Study," Information Systems Research, INFORMS, vol. 23(2), pages 436-452, June.
  • Handle: RePEc:inm:orisre:v:23:y:2012:i:2:p:436-452
    DOI: 10.1287/isre.1110.0362
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    File URL: http://dx.doi.org/10.1287/isre.1110.0362
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    References listed on IDEAS

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    2. Liangfei Qiu & Asoo Vakharia & Arunima Chhikara, 2019. "Multi-Dimensional Observational Learning in Social Networks: Theory and Experimental Evidence," Working Papers 19-01, NET Institute.
    3. Paulo B. Goes & Mingfeng Lin & Ching-man Au Yeung, 2014. "“Popularity Effect” in User-Generated Content: Evidence from Online Product Reviews," Information Systems Research, INFORMS, vol. 25(2), pages 222-238, June.
    4. 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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