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Cited by 667Experimental Behavioral Economics StudiesAuction Theory and ApplicationsAccess Control and Trust

How Effective Are Electronic Reputation Mechanisms? An Experimental Investigation

Bolton, Gary E., Katok, Elena, Ockenfels, Axel·2004·Management Science
DOI 10.1287/mnsc.1030.0199
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Abstract

Electronic reputation or “feedback” mechanisms aim to mitigate the moral hazard problems associated with exchange among strangers by providing the type of information available in more traditional close-knit groups, where members are frequently involved in one another's dealings. In this paper, we compare trading in a market with online feedback (as implemented by many Internet markets) to a market without feedback, as well as to a market in which the same people interact with one another repeatedly (partners market). We find that while the feedback mechanism induces quite a substantial improvement in transaction efficiency, it also exhibits a kind of public goods problem in that, unlike in the partners market, the benefits of trust and trustworthy behavior go to the whole community and are not completely internalized. We discuss the implications of this perspective for improving feedback systems.

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Crossref · 10.1287/mnsc.1030.0199

Cites

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Each is checked against this paper’s own text: does it say what the citing paper says it does?

  • Bolton et al. (2004) find that feedback induces a substantial improvement in transaction efficiency (a lack of cheating and improved trust).

    “Bolton et al. (2004) compare trading with feedback to trading without feedback and find that although feedback induces a substantial improvement in transaction efficiency (a lack of cheating and improved trust)”

    From Reputation and Feedback Systems in Online Platform Markets (2016) · cites this paper as Bolton et al. (2004)

    The Results (§4, page unavailable) explicitly report that access to reputation information substantially improves transaction efficiency, and §4.2 links feedback to trust and trustworthy behavior. The parenthetical goes further: the paper does not say feedback eliminates cheating, and §4.2 describes sellers who did not ship orders in the feedback market. (LLM, conf=0.86)

    Experimental — accuracy not yet measured

  • Bolton et al. (2004) find that feedback exhibits a public goods problem because participants understand the benefits of trust and trustworthy behavior are enjoyed by everyone and are not completely internalized.

    “it also exhibits a public goods problem in that participants understand that the benefits of trust and trustworthy behavior are enjoyed by everyone and are therefore not completely internalized.”

    From Reputation and Feedback Systems in Online Platform Markets (2016) · cites this paper as Bolton et al. (2004)

    Section 4.3 explains that, in feedback markets, the benefits of trust and trustworthiness extend to other traders and are not fully internalized, unlike in partner relationships. The Conclusions report that participants responded to strategic incentives, but the paper does not establish that they understood this particular public-goods mechanism. (LLM, conf=0.84)

    Experimental — accuracy not yet measured

  • The growth of e-auctions and other forms of e-commerce is based, to a considerable degree, on reputation and trust.

    “The growth of e-auctions and other forms of e-commerce is based, to a considerable degree, on reputation and trust 5-10 .”

    From Evolution of indirect reciprocity (2005) · cites this paper as [5]

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Cites

Flagged first, then by citations

Research works printed but not linked: 19

  1. Alexander, R.D. (1987). The Biology of Moral Systems . New York: Aldine De Gruyter.
  2. Avery, C., P. Resnick, and R. Zeckhauser (1999). 'The Market for Evaluations.' American Economic Review , 89, 564-584.
  3. Ba, S. (2001) 'Establishing Online Trust through a Community Responsibility System.' Decision Support Systems , 31(3), 323-336.
  4. Ba, S., and P.A. Pavlou (2002). 'Evidence of the Effect of Trust Building Technology in Electronic Markets: Price Premiums and Buyer Behavior.' MIS Quarterly , 26, 243-268.
  5. Ba, S., A.B. Whinston, and H. Zhang (2003). 'Building Trust in Online Auction Markets through an Economic Incentive Mechanism.' Decision Support Systems , 35(3), 273-286.
  6. Bolton, G.E, and A. Ockenfels (2000). "ERC: A Theory of Equity, Reciprocity and Competition." American Economic Review , 90, 166-193.
  7. Buchan, N., R. Croson, and R. Dawes (2002). 'Swift Neighbors and Persistent Strangers: A Cross-Cultural Investigation of Trust and Reciprocity in Social Exchange.' American Journal of Sociology , 108, 168-207.
  8. Diamond, D. (1989). 'Reputation Acquisition in Debt Markets.' Journal of Political Economy , 97, 828-862. eBay (2002). http://pages.ebay.com/services/forum/feedback.html.
  9. Ellison, G. (1994). 'Cooperation in the Prisoner's Dilemma with Anonymous Random Matching.' Review of Economic Studies , 61, 567-588.
  10. Fehr, E., and K. Schmidt (1999). 'A Theory of Fairness, Competition, and Cooperation.' Quarterly Journal of Economics , 114, 817-868.
  11. Friedman, E., and P. Resnick (2001). "The Social Cost of Cheap Pseudonyms." Journal of Economics and Management Strategy , 10(2), 173-199.
  12. Granovetter, M. (1985). "Economic Action and Social Structure: The Problem of Embeddedness." American Journal of Sociology , 91, p. 481-510.
  13. Greene, W.H. (1993). Econometric Analysis , 2 nd edition, MacMillan: New York.
  14. Greif, A. (1989). 'Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders.' Journal of Economic History , 49, 857-882.
  15. Güth, W. and A. Ockenfels (forthcoming). 'The Coevolution of Trust and Institutions in Anonymous and Non-anonymous Communities.' In: M.J. Holler, H. Kliemt, D. Schmidtchen and M. Streit (eds.), Jahrbuch für Neue Politische Ökonomie , 20, Tübingen: Mohr Siebeck.
  16. Melnik, M.I., and J. Alm (2002). 'Does a Seller's E-commerce Reputation Matter?' Journal of Industrial Economics , 50(3), 337-49.
  17. Ockenfels, A. (2003), 'Reputationsmechanismen auf Internet-Marktplattformen: Theorie und Empirie.' Zeitschrift für Betriebswirtschaft , 73(3), 295-315.
  18. Resnick, P. and R. Zeckhauser (2002). 'Trust Among Strangers in Internet Transactions: Empirical Analysis of eBay's Reputation System.' In: M.R. Baye (ed.), The Economics of the Internet and E-Commerce , Volume 11 of Advances in Applied Microeconomics, Amsterdam, Elsevier Science.
  19. Selten, R. (1998). 'Features of Experimentally Observed Bounded Rationality.' Presidential Address, European Economic Review , 42, 413-36.

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Authors
Bolton, G. E., Katok, E., & Ockenfels, A.
Affiliations
  • Pennsylvania State University (US)
  • University of Cologne (DE)
ORCID
Venue
Management Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Published
2004-11
Volume
50
Issue
11
Pages
1587-1602
ISSN
  • 0025-1909 (ISSN-L)
  • 1526-5501
DOI
10.1287/mnsc.1030.0199
OpenAlex
W2122555070
Cited by
667
References
4
Citations by year
2026: 17 · 2025: 12 · 2024: 20 · 2023: 26 · 2022: 23 · 2021: 35 · 2020: 33 · 2019: 30 · 2018: 34 · 2017: 29 · 2016: 29 · 2015: 30 · 2014: 41 · 2013: 31 · 2012: 68
FWCI
75.96
Type
journal article
Language
en
Open access
closed
Locations
  • Management Science (publishedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
  • Bayerische Staatsbibliothek (submittedVersion)
Funders
Deutsche Forschungsgemeinschaft
Topics
  • Social Sciences › Safety Research › Experimental Behavioral Economics Studies
  • Social Sciences › Decision Sciences › Management Science and Operations Research › Auction Theory and Applications
  • Social Sciences › Sociology and Political Science › Access Control and Trust
Keywords
moral hazard, trust, transaction efficiency, repeated interaction, public goods problem, digital markets

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