Trust and Reputation in Internet Auctions

Exchange between anonymous actors in Internet auctions corresponds to a one-shot prisoner's dilemma-like situation. Therefore, in any given auction the risk is high that seller and buyer will cheat and, as a consequence, that the market will collapse. However, mutual cooperation can be attained by the simple and very efficient institution of a public rating system. By this system, sellers have incentives to invest in reputation in order to enhance future chances of business. Using data from about 200 auctions of mobile phones we empirically explore the effects of the reputation system. In general, the analysis of nonobtrusive data from auctions may help to gain a deeper understanding of basic social processes of exchange, reputation, trust, and cooperation, and of the impact of institutions on the efficiency of markets. In this study we report empirical estimates of effects of reputation on characteristics of transactions such as the probability of a successful deal, the mode of payment, and the selling price (highest bid). In particular, we try to answer the question whether sellers receive a "premium" for reputation. Our results show that buyers are willing to pay higher prices for reputation in order to diminish the risk of exploitation. On the other hand, sellers protect themselves from cheating buyers by the choice of an appropriate payment mode. Therefore, despite the risk of mutual opportunistic behavior, simple institutional settings lead to cooperation, relatively rare events of fraud, and efficient markets.

Personality traits and the propensity to trust friends and strangers

Research on the foundations of social trust mainly concentrates on the evaluation of one's social environment. Empirical evidence focusing on the psychological origins of social trust is quite rare and the findings of these few studies remain inconclusive. Two innovations are proposed in order to systemize the knowledge about the foundations of social trust. First, we propose using a trust measure that is sensitive to different categories of trustees and refers to a realistic situation. Second, we argue for a broad conception of personality, rather than focusing only on selected attributes. Using data from a unique Swiss population survey, we show that the impact of personality traits on trust in strangers is stronger than on trust in friends. While conscientiousness and openness, in particular, are important traits for the development of both trust in friends and strangers, agreeableness is related to trust in strangers.

Moral Opinion Polarization and the Erosion of Trust

Since Puntam's seminal work on declining levels of social capital, the question of how social trust is formed has reached unprecedented heights of critical enquiry. While most of the current research concentrates on ethnic diversity and income inequality as the main influences driving down generalized trust, we focus on opinion polarization as another potential impact factor on trust. In more detail, we investigate the extent to which polarization over morally charged issues such as homsexuality, abortion and euthanasia affects individuals' likelihood to trust others. We hypothesize that moral issues have a natural tendency to divide societies' opinions into opposing poles and, thus, to challenge social cohesion in modern civil societies. Based on hierarchical analyses of the fifth wave of the World Values Survey (WVS) — comprising a sample of 39 countries — our results reveal that individuals living in countries characterized by more opinion polarization tend to have less trust in other people.