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Remain silent and ye shall suffer: seller exploitation of reticent buyers in an experimental reputation system

Published online by Cambridge University Press:  14 March 2025

Robert S. Gazzale  and
Tapan Khopkar
Robert S. Gazzale*
Affiliation:
Department of Economics, Williams College, 24 Hopkins Hall Dr., Williamstown, MA 01267, USA
Tapan Khopkar*
Affiliation:
Cartesian Consulting Pvt. Ltd., 83-C Hansraj Pragji Bldg, Worli, Mumbai 400018, India
*
e-mail: rgazzale@williams.edu
e-mail: tapan.khopkar@gmail.com
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Abstract

By providing incentives for sellers to act in a trustworthy manner, reputation mechanisms can mitigate moral-hazard problems when particular buyers and sellers interact infrequently. However, these mechanisms rely on buyers sharing their private information about sellers, and thus may suffer from too little feedback when provision is costly. We experimentally compare a standard feedback mechanism to one in which sellers can inspect a buyer's feedback-provision history, thus providing incentives to share private information even when costly. We find fairly high trust and trustworthiness in all markets, with buyers providing costly feedback, especially negative, sufficient to induce trustworthiness. However, feedback-provision histories did not improve outcomes, and at least weakly decreased trustworthiness with experienced participants, as this information enabled sellers to discriminate and ship less frequently to buyers lacking a reputation for information sharing.

Keywords

Experimental economicsTrustReputationElectronic markets

JEL classification

C91: Laboratory, Individual Behavior L14: Transactional Relationships • Contracts and Reputation • Networks C72: Noncooperative Games
Type
Research Article
Information
Experimental Economics , Volume 14 , Issue 2 , May 2011 , pp. 273 - 285
Copyright
Copyright © Economic Science Association 2011

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