Abstract
Economic transactions are subject to trust problems, which can be solved by means of long-term business relations, by institutional regulations or by reputational incentives. In this chapter, we first deal with the problems related to trust and their various solutions. We then discuss the way the reputation mechanism has worked in markets in historical societies and in online markets in contemporary societies. Although the reputation mechanism worked similarly in the past, as it does today, the technologies available to communicate information about reputation have changed. This is particularly evident in online markets, in which electronic rating systems have become an essential element. In the third part of this chapter, we focus on the development, forms, and consequences of reputation in online markets. Reputation information must be credible in order to promote cooperative market exchange. For reputation information to be credible, simple means of deception must be unavailable. We conclude this chapter by dealing with the downside of reputation systems.
This chapter is an extended version of Diekmann and Przepiorka (2016, 2019a). Section 5 also includes material from Diekmann and Przepiorka (2019b).
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Notes
- 1.
An instructive field study on dentists was conducted by Gottschalk et al. (2019). Twenty-eight per cent of 180 dentists in the canton of Zurich, Switzerland, suggested one to six unnecessary fillings (with an average cost of 250 Swiss Francs—about 250 US$—per filling) to healthy study participants.
- 2.
A Nash equilibrium is a combination of strategies, such that no actor has an incentive to deviate (to switch to an alternative strategy) as long as all other actors stick to their strategies. In other words, a unilateral change of strategy does not pay off in a Nash equilibrium.
- 3.
In terms of game theory, cooperative equilibrium strategies exist in a repeated game, if the probability of meeting one’s interaction partner again is sufficiently high (see, for example, Osborne 2009, Chap. 15).
- 4.
Based on a theory driven analysis of hundreds of thousands of rating events obtained from eBay, Diekmann et al. (2014) show that strong reciprocity, but also altruism (Becker 1976) and strategic motives (Dellarocas et al. 2004), are important drivers of online traders leaving feedback after finished transactions. Other motives such as warm glow altruism (Andreoni 1990) or indirect reciprocity (Nowak and Sigmund 2005) may also play a role in traders leaving feedback but turned out to be difficult to identify with observational data (Diekmann et al. 2014).
- 5.
The dark web also helps civil rights activists and journalists living in dictatorial regimes to communicate freely.
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Diekmann, A., Przepiorka, W. (2021). Trust and Reputation in Historical Markets and Contemporary Online Markets. In: Maurer, A. (eds) Handbook of Economic Sociology for the 21st Century. Handbooks of Sociology and Social Research. Springer, Cham. https://doi.org/10.1007/978-3-030-61619-9_9
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