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Trust among Internet Traders: A Behavioral Economics Approach

Gary Bolton (), Elena Katok () and Axel Ockenfels

No 5, Working Paper Series in Economics from University of Cologne, Department of Economics

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.

Pages: 25 pages
Date: 2004-02-25
New Economics Papers: this item is included in nep-cbe and nep-net
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Published in Analyse und Kritik, 2004, 26, 185-202

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