[Ias-public] The Institute for Analytical Sociology Seminar: Wojtek Przepiorka, October 29, 11:00, Online on Zoom

[Madelene Töpfer]

The Institute for Analytical Sociology Seminar

Venue: Zoom (see Zoom link in the end of the email)


Thursday, October 29 @ 11:00

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Testing sociological theories with online market data: How reputation information promotes cooperative market exchange

Wojtek Przepiorka
Utrecht University


Abstract:
Most online market exchanges are governed by reputation systems, which allow traders to comment on another's behavior, attributes, products and services with ratings and text messages. These ratings constitute traders' reputations, which can be conceived of as signals of these traders' trustworthiness and competences. Since building a good reputation from positive ratings and reviews takes time and requires cooperative behavior, only trustworthy sellers will bother to invest in building one. Hence, buyers can infer sellers' honest intentions from their good reputations. However, reputation as a barrier to market entry does not constrain competition. Traders without a reputation but a long-term intention to cooperate can attract buyers by offering discounts for which they are compensated once they prove to be trustworthy and acquire a good reputation. The reputation premium, which results from the necessity to invest in building a reputation, is also called 'reputation effect' to denote the effect a good reputation has on business success in terms of sales and prices.
Although the reputation effect has been estimated in dozens of studies that analyze online market data obtained from different platforms and product categories, there is still no consensus as to how its size should be interpreted. This discussion is fueled by the fact that some studies find a substantially large but many studies find a seemingly small reputation effect. The common conjecture is that a substantially large reputation effect evidences the monetary value of reputation - the primary incentive for sellers to behave cooperatively. By implication, it is conjectured that a small reputation effect evidences that other than reputational incentives promote seller cooperation. However, there is a simple theoretical argument for why this conjecture may be inaccurate: The higher the rate of truthful feedbacks, the quicker will untrustworthy sellers be sorted out, and the fewer untrustworthy sellers there are in a market, the less attention will buyers pay to sellers' reputations. In other words, the more effective a reputation system is in exposing untrustworthy sellers, the smaller will be the reputation effect.
After outlining this theoretical argument in terms of a game-theoretic model, we use meta-analysis and behavioral laboratory experiments to shed light on its validity. Our meta-analysis synthesizes evidence from 107 studies investigating the reputation effect in peer-to-peer online markets. It includes 378 coefficients estimated based on 181 different datasets comprising a total of 14.04 million observations of online market transactions. Our results corroborate the existence of the reputation effect across different operationalizations of seller reputation and selling performance. The lab experiment emulates an online market environment in which buyers and sellers interact with each other via trust games. We vary the rate of truthful feedbacks to test the hypothesis that the reputation effect decreases as the feedback rate increases. We describe the experimental design and report preliminary results.

By Wojtek Przepiorka (with Ruohuang Jiao and Vincent Buskens, Utrecht University)





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