Li, Lingfang (Ivy) and Xiao, Erte (2010): Money Talks? An Experimental Study of Rebate in Reputation System Design.
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Reputation systems that rely on feedback from traders are important institutions for helping sustain trust in markets, while feedback information is usually considered a public good. We apply both theoretical models and experiments to study how raters' feedback behavior responds to different reporting costs and how to improve market efficiency by introducing a pre-commitment device for sellers in reputation systems. In particular, the pre-commitment device we study here allows sellers to provide rebates to cover buyers' reporting costs before buyers make purchasing decisions. Using a buyer-seller trust game with a unilateral feedback scheme, we find that a buyer’s propensity to leave feedback is more sensitive to reporting costs when the seller cooperates than when the seller defects. The seller’s decision on whether to provide a rebate significantly affects the buyer’s decision to leave feedback by compensating for the feedback costs. More importantly, the rebate decision has a significant impact on the buyer's purchasing decision via signaling the seller's cooperative type. The experimental results show that the rebate mechanism improves the market efficiency.
|Item Type:||MPRA Paper|
|Original Title:||Money Talks? An Experimental Study of Rebate in Reputation System Design|
|Keywords:||reputation, trust, feedback mechanism, asymmetric information, public goods, experimental economics|
|Subjects:||D - Microeconomics > D0 - General > D03 - Behavioral Economics; Underlying Principles
D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, and Operations
H - Public Economics > H4 - Publicly Provided Goods > H41 - Public Goods
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information; Mechanism Design
L - Industrial Organization > L8 - Industry Studies: Services > L86 - Information and Internet Services; Computer Software
C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior
|Depositing User:||Erte Xiao|
|Date Deposited:||30. Apr 2010 02:13|
|Last Modified:||15. Feb 2013 12:19|
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