eTrust: Forming Relationships in the Online World

Karen S. Cook
Chris Snijders
Vincent Buskens
Coye Cheshire
Copyright Date: 2009
Published by: Russell Sage Foundation
Pages: 272
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  • Book Info
    Book Description:

    There is one thing that moves online consumers to click “add to cart,” that allows sellers to accept certain forms of online payment, and that makes online product reviews meaningful: trust. Without trust, online interactions can’t advance. But how is trust among strangers established on the Internet? What role does reputation play in the formation of online trust? In eTrust, editors Karen Cook, Chris Snijders, Vincent Buskens, and Coye Cheshire explore the unmapped territory where trust, reputation, and online relationships intersect, with major implications for online commerce and social networking. eTrust uses experimental studies and field research to examine how trust in anonymous online exchanges can create or diminish cooperation between people. The first part of the volume looks at how feedback affects online auctions using trust experiments. Gary Bolton and Axel Ockenfels find that the availability of feedback leads to more trust among one-time buyers, while Davide Barrera and Vincent Buskens demonstrate that, in investment transactions, the buyer’s own experience guides decision making about future transactions with sellers. The field studies in Part II of the book examine the degree to which reputation facilitates trust in online exchanges. Andreas Diekmann, Ben Jann, and David Wyder identify a “reputation premium” in mobile phone auctions, which not only drives future transactions between buyers and sellers but also payment modes and starting bids. Chris Snijders and Jeroen Weesie shift focus to the market for online programmers, where tough competition among programmers allows buyers to shop around. The book’s third section reveals how the quality and quantity of available information influences actual marketplace participants. Sonja Utz finds that even when unforeseen accidents hinder transactions—lost packages, computer crashes—the seller is still less likely to overcome repercussions from the negative feedback of dissatisfied buyers. So much of our lives are becoming enmeshed with the Internet, where ordinary social cues and reputational networks that support trust in the real world simply don’t apply. eTrust breaks new ground by articulating the conditions under which trust can evolve and grow online, providing both theoretical and practical insights for anyone interested in how online relationships influence our decisions.

    eISBN: 978-1-61044-608-2
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. About the Authors
    (pp. ix-x)
  4. Introduction
    (pp. 1-12)
    Karen S. Cook, Chris Snijders, Vincent Buskens and Coye Cheshire

    Trust facilitates social interaction. When it exists, it strengthens cooperation, provides the basis for risk-taking, and grants latitude to the parties involved. When it does not exist, various mechanisms are required to protect against exploitation. In its most basic form, trust can be reduced to a situation where A knows that if she hands over the control of the situation to B, B can choose between an action X or Y. Trust is involved when there is a real probability that B will choose the action A does not prefer (Coleman 1990). Many trust-related distinctions, which are often implicit, can...


    • Chapter 1 The Limits of Trust in Economic Transactions: Investigations of Perfect Reputation Systems
      (pp. 15-36)
      Gary E. Bolton and Axel Ockenfels

      As the Internet economy has grown, so too has the need for trust. A degree of trust is critical in virtually all economic relation-ships, Internet or otherwise. Every day we choose to trust plumbers, doctors, employers, employees, teachers, airlines, and others. The need for trust arises from the fact that we cannot contract on every move others make. And what we can contract on is often prohibitively costly to enforce. The anonymity of geographically dispersed Internet traders increases contracting difficulties: you may not be able to identify your eBay seller or verify the quality of the object being sold, let...

    • Chapter 2 Third-Party Effects
      (pp. 37-72)
      Davide Barrera and Vincent Buskens

      Imagine that you have decided on a financial investment, for example, for a private pension, and you have to choose among several companies offering similar services. Imagine also that you do not have much experience with this type of investment. You could investigate the past performances of all companies and compare them, but this would take considerable time, especially if there are many of them. You could ask a friend who made a similar investment about her experience, but this provides information on only one company. You could choose by reputation, simply picking the most well-known company, but companies with...

    • Chapter 3 Solving the Lemons Problem with Reputation
      (pp. 73-108)
      Toshio Yamagishi, Masafumi Matsuda, Noriaki Yoshikai, Hiroyuki Takahashi and Yukihiro Usui

      In this chapter we ask whether reputation can be successfully used to provide a solution to thelemons problem. This is a potential threat to traders who conduct trades without institutional mechanisms for enforcing contracts. In a classic paper on the market for lemons, George Akerof argued that asymmetry of information, which existed in the used car market in the days when buyers did not have an easy access to research the complete maintenance and accident history of a particular vehicle easily, could drive honest traders and high quality goods out of the market, resulting in a market where lemons...

    • Chapter 4 In the Eye of the Beholder: Culture, Trust, and Reputation Systems
      (pp. 109-136)
      Tapan Khopkar and Paul Resnick

      A reputation system collects, aggregates, and distributes information about people’s past behavior. Little is known about cross-cultural differences in how people interpret information from reputation systems and adjust their strategic behavior. This chapter presents the first experimental evidence about such cross-cultural differences. In the process, we also shed light on the question of whether apparent cross-cultural differences in trust are merely a rational response to differences in trustworthiness.

      The purpose of a reputation system is to enable trust and encourage trustworthiness in situations of social uncertainty. Denise Rousseau and her colleagues defined trust as “a psychological state comprising the intention...


    • Chapter 5 Trust and Reputation in Internet Auctions
      (pp. 139-165)
      Andreas Diekmann, Ben Jann and David Wyder

      Economic exchange between anonymous actors is risky for all interacting parties. Whether in barter or in sale against cash, in a bilateral exchange situation both actors have to choose between being more or less cooperative or acting fraudulently. A seller, for example, needs to decide whether to deliver at all, to deliver good quality, or to deliver bad quality, and a buyer may choose to evade, reduce, or delay the payment. It is well known that such cooperation problems can be solved by repeated interactions if the shadow of the future, that is, the expectation and valuation of future transactions,...

    • Chapter 6 Online Programming Markets
      (pp. 166-186)
      Chris Snijders and Jeroen Weesie

      Many of the mechanisms that exist offline and ensure that an interaction between people runs smoothly are not available in online interactions. Alarge shadow of the future cannot easily be guaranteed, for example: who knows whether you are going to deal with the people in this online help forum again, whether you will be buying from the same online reseller again. In addition, because the interacting partners can be geographically dispersed it is often impossible to sanction a partner who has misbehaved toward you, even if you manage to discover that individual’s real world identity. In the absence of such...


    • Chapter 7 Assessing Trustworthiness in Providers
      (pp. 189-214)
      Karen S. Cook, Coye Cheshire, Alexandra Gerbasi and Brandy Aven

      In this chapter, we examine the factors that individuals use when determining the trustworthiness of exchange partners who provide either goods or services in online environments. We argue that the competence and motivations of the exchange partner are two key bases of individuals’ inferences about trustworthiness, particularly when no third-party or credible institutional devices are in place to reduce uncertainty and manage risk. However, we demonstrate that the effects of competence and motivation have different relative degrees of importance in online goods markets than in their service counterparts. We present the results of an exploratory study designed to examine how...

    • Chapter 8 Rebuilding Trust after Negative Feedback: The Role of Communication
      (pp. 215-237)
      Sonja Utz

      Online reputation systems, also called feedback systems, are commonly regarded asthesolution to the trust problem in online markets (see, for example, Ba and Pavlou 2002; Bolton, Katok, and Ockenfels 2004; chapter 1, this volume; Dellarocas 2003; Kollock 1999; Resnick et al. 2000; chapter 3, this volume). However, research has focused mainly on the question of how trust can be built in an online market, but it has neglected the question of how trust can be rebuilt. The chapter provides answers on this understudied question from a social-psychological perspective. The main focus is on the role of communication in...

    • Chapter 9 The Acceptance and Effectiveness of Social Control on the Internet
      (pp. 238-265)
      Uwe Matzat

      Social control is applied on the Internet in many forms. In leisure time communities, administrators may resort to drastic measures and banish misbehaving members (Suler and Phillips 1998), whereas scientific email list administrators influence member behavior successfully by simply appealing to norms (Matzat 2004). Between the two extremes is a continuum of forms that spans the entire range between direct and indirect control, which can be very effective (see Peterson 1997). Online auctions such as eBay apply a direct form of social control by allowing members to evaluate each other’s behavior during financial transactions. The resulting reputation score directly affects...

    • Chapter 10 Order, Coordination, and Uncertainty
      (pp. 266-291)
      Coye Cheshire and Judd Antin

      Online exchange systems that allow individuals to view, share, and edit text, images, audio, and video are now a key element of the Internet landscape. Millions of people who were once passive consumers of information provided by privileged gatekeepers can produce and share content at very low cost. The continued evolution of large-scale online systems has also helped facilitate large-scale collective action in which information is the object of value and exchange.

      According to one estimate, the Internet contained more than 500,000 terabytes of information in 2002 and was growing at an exponential rate (Lyman and Varian 2003). It would...

    • Chapter 11 Cooperation with and without Trust Online
      (pp. 292-318)
      Azi Lev-On

      The sweeping and extensive penetration of the Internet generates endless possibilities for emergent associations and exchange. Engendering trust may be critical to enabling agents to gain from such exchange; for example, trust can assist in overcoming dilemmas related to multinational organizations, global virtual teams, auction and barter sites, house exchange sites, peer-to-peer file swapping sites, and on and on (Iacono and Weisband 1997; Jarvenpaa and Leidner 1999; Kirkman et al. 2002).

      The formation and continuance of trust online, however, runs into obstacles that jeopardize the fulfillment of the great potentials of the Internet for mutually beneficial exchange (see Nissenbaum 2004;...

  8. Index
    (pp. 319-330)