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The Dynamics of Trust and Trustworthiness on EBay. An Evolutionary Analysis of Buyer Insurance and Seller Reputation

  • Friederike Mengel
  • Axel Ockenfels
  • Werner Güth


Applying an evolutionary framework, we investigate how a reputation mechanism and a buyer insurance (as used on Internet market platforms such as eBay) interact to promote trustworthiness and trust. Our analysis suggests that the costs involved in giving reliable feedback determine the gains from trade that can be obtained in equilibrium. Buyer insurance, on the other hand, can affect the trading dynamics and equilibrium selection. We find that, under reasonable conditions, buyer insurance crowds out trust and trustworthiness.

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Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2006-03.

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Length: 18 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:esi:discus:2006-03
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  1. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc.
  2. Eric J. Friedman* & Paul Resnick, 2001. "The Social Cost of Cheap Pseudonyms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(2), pages 173-199, 06.
  3. Ernst Fehr & Simon Gaechter, 2003. "Altruistic Punishment in Humans," Microeconomics 0305006, EconWPA.
  4. Güth, Werner & Ockenfels, Axel, 1999. "Evolutionary norm enforcement," SFB 373 Discussion Papers 1999,84, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  5. Klein, Tobias J. & Lambertz, Christian & Spagnolo, Giancarlo & Stahl, Konrad O., 2006. "Last Minute Feedback," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 62, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  6. Patrick Bajari & Ali Horta�su, 2004. "Economic Insights from Internet Auctions," Journal of Economic Literature, American Economic Association, vol. 42(2), pages 457-486, June.
  7. J. Hofbauer & P. Schuster & K. Sigmund, 2010. "A Note on Evolutionary Stable Strategies and Game Dynamics," Levine's Working Paper Archive 441, David K. Levine.
  8. Gary Bolton & Elena Katok & Axel Ockenfels, 2002. "How Effective are Online Reputation Mechanisms?," Papers on Strategic Interaction 2002-25, Max Planck Institute of Economics, Strategic Interaction Group.
  9. Selten, Reinhard, 1983. "Evolutionary stability in extensive two-person games," Mathematical Social Sciences, Elsevier, vol. 5(3), pages 269-363, September.
  10. Axel Ockenfels, 2002. "Reputationsmechanismen auf Internet-Marktplattformen - Theorie und Empirie -," Papers on Strategic Interaction 2002-46, Max Planck Institute of Economics, Strategic Interaction Group.
  11. Guth, Werner, 1995. "An Evolutionary Approach to Explaining Cooperative Behavior by Reciprocal Incentives," International Journal of Game Theory, Springer, vol. 24(4), pages 323-44.
  12. Werner Güth & Axel Ockenfels, 2002. "The Coevolution of Trust and Institutions in Anonymous and Non-anonymous Communities," Papers on Strategic Interaction 2002-07, Max Planck Institute of Economics, Strategic Interaction Group.
  13. Andrew Kato & Ginger Jin, 2004. "Consumer frauds and the uninformed: Evidence from an online field experiment," Natural Field Experiments 00275, The Field Experiments Website.
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