Trust and Reputation in Historical Markets and Contemporary Online Markets

Abstract

Economic transactions are subject to trust problems, which can be solved by means of long-term business relations, by institutional regulations or by reputational incentives. In this chapter, we first deal with the problems related to trust and their various solutions. We then discuss the way the reputation mechanism has worked in markets in historical societies and in online markets in contemporary societies. Although the reputation mechanism worked similarly in the past, as it does today, the technologies available to communicate information about reputation have changed. This is particularly evident in online markets, in which electronic rating systems have become an essential element. In the third part of this chapter, we focus on the development, forms, and consequences of reputation in online markets. Reputation information must be credible in order to promote cooperative market exchange. For reputation information to be credible, simple means of deception must be unavailable. We conclude this chapter by dealing with the downside of reputation systems.