Abstract
We experimentally evaluate reputation mechanisms in an exchange market in which participants have the option of not fulfilling their contracts. These mechanisms vary in the information they provide on past behavior. Participants can choose who they trade with, allowing endogenous responses to low reputation through ostracizing or price discriminating behaviors. The participants responded strategically to the provided information. In particular, mechanisms revealing more information had a statistically significant increase in fulfillment rates and endogenous self-reporting of transaction outcomes was about the same as accurate exogenous reports. Our experimental design allowed us to identify the effect of reputation mechanism on endogenous market behavior. We found that decreasing fulfillment led to lower efficiency and increased market volume but did not affect the prices. We also find a large diversity of individual behavior within the experiments.
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