Online Markets and Trust

Abstract

In this paper, we first conduct a lab-in-the-field experiment of a simple one-shot trust game among villagers in a rural county located in northern China. Comparing individuals who have and have not yet opened but are interested in opening their own online stores, which is, to a great extent, decided by their social ties to the two townships of early e-commerce centers within the county, we find that the experience as online market sellers improves individuals' levels of trustworthy. We conjecture that such an effect, which contrasts with previous evidence in the literature demonstrating markets' detrimental impact on morality, can be attributed to the existence of an instant feedback system in online markets and the social heuristic hypothesis. To investigate this possibility, we then conduct a laboratory experiment of an infinitely repeated market game with information asymmetry, both before and after which subjects also play a one-shot trust game. We do not find that adding a ratings system similar to the real-world online feedback systems increases sellers' post-market trustworthiness, though it does improve the market efficiency, and makes the reciprocal behavior in the market (selling high-quality products) more rewarding. Somewhat unexpectedly, adding the feedback system indeed increases the buyers' post-market trustworthiness. Results from the two experiments together suggest that the online market experience may shape trust-worthiness, but for the seller experience, besides the the feedback system, other market features such as market sizes probably also play a role in bringing out a positive effect; the buyer experience may also matter via shifting norm beliefs.