Building trust on-line : the design of reliable reuptation reporting building trust on-line : the design or reliable reputation reporting PDF
Preview Building trust on-line : the design of reliable reuptation reporting building trust on-line : the design or reliable reputation reporting
MITLIBRARIES DUPL 3 9080 02246 1260 DEWEY ^ '<> •'Bu§in«ss#MIT MIT Management Sloan School of Sloan Working Paper 4180-01 eBusiness@MIT Working Paper 101 October 2001 BUILDING TRUST ON-LINE: THE DESIGN OF RELIABLE REPUTATION REPORTING BUILDING TRUST ON-LINE: THE DESIGN OF RELIABLE REPUTATION REPORTING Chrysanthos Dellarocas This paper is available through the Center for eBusiness@MIT web site at the following URL: http://ebusiness.mit.edu/research/papers.htiTil This paper also can be downloaded without charge from the Social Science Research Network Electronic Paper Collection: http://papers.ssm.com/abstract=289967 Building Trust On-Line: The Design ofReliable Reputation Reporting Mechanisms for Online Trading Communities Chrysanthos Dellarocas Sloan School ofManagement Massachusetts InstituteofTechnology RoomE53-315 Cambridge, MA 02139 dell(a!mit.cdu Abstract: Several propertiesofonline interactionarechallengingtheaccumulatedwisdomoftradingcommunities on how to produceandmanagetrust. Onlinereputationreportingsystemshave emergedasapromisingtrust managementmechanismin such settings. Theobjectiveofthispaperistocontribute totheconstructionof onhnereputationreporting systemsthatarerobustinthepresenceofunfairanddeceitfulraters. Thepaper setsthe stagebyprovidingacritical overviewofthecurrentstateoftheart in this area. Followingthat, it identifies anumberofimportantways inwhich thereliabilityofthecurrentgenerationofreputation reporting systemscanbe severelycompromisedby unfairbuyers andsellers. Thecentralcontributionof the paper is a numberofnovel "immunization mechanisms" foreffectively countering theundesirable effects ofsuch fraudulentbehavior. Thepaperdescribes the mechanisms, proves theirproperties and e.\plainshow various parameters ofthemarketplace microstructure, mostnotably theanonymityand authentication regimes, can influencetheireffectiveness. Finally, itconcludes by discussing the implications ofthefindings forthe managers andusersofcurrentand futureelectronic marketplaces and identifies some importantopen issues forfiitureresearch. 1. Introduction Attheheartofanybilateral exchange there is atemptation, fortheparty who moves second, todefect from the agreed upon terms inways thatresult in individual gains forit(and losses fortheotherparty). For example, intransactionswherethebuyerpaysfirst, theselleristemptedtonotprovidetheagreedupon goodsorservices ortoprovidethemataqualitywhich isinferiortowhatwasadvertisedtothebuyer. Unlesstherearesomeotherguarantees,thebuyerwouldthenbetemptedto holdbackonhersideofthe exchangeas well. In suchsituations, the tradewillnevertakeplaceandbothpartieswillendupbeing worseoff. Unsecuredbilateral exchangesthushavethestructureofaPrisoner's Dilemma. Oursociety has developedawiderange ofinformal mechanismsandformal institutions form.anagingsuch risksandthus facilitatingtrade. Thesimple actofmeeting face-to-facetosettleatransactionhelpsreduce the likelihoodthatonepartywill end up empty-handed. Written contracts, commercial law, credit card companies and escrow servicesareadditional examples ofinstitutionswith exactly thesamegoals. Although mechanismdesignand institutional supportcanhelpreduce transactionrisks, theycannever eliminatethemcompletely. Oneexample is therisk involving theexchange ofgoods whose"real"quality canonlybeassessedbythebuyerarelatively longtimeafteratradehasbeen completed(e.g. usedcars). Even where societydoesprovide remedial measures tocoverrisks in suchcases(forexample, the Massachusetts"lemon law"), these are usuallyburdensomeandcostlyandmostbuyerswouldverymuch rathernothavetoresortto them. Generallyspeaking,themorethetwosidesofatransactionareseparated in time andspace, thegreatertherisks. Inthosecases, notransactionwilltakeplaceunlessthepartywho moves firstpossessessomesufficientdegreeoftnistthatthepartywhomoves secondwill indeedhonorits commitments. Theproduction oftrust, therefore, isapreconditionfortheexistenceofanymarketand civilized society in general (Dunn, 1984; Gambetta, 1990). In "bncks and mortar"communities, theproduction oftrustisbasedon several cues, oftenrationalbut sometimes purely intuitive. Forexample, wetendtotrustordistrustpotential tradingpartnersbasedon theirappearance, the toneoftheir voice ortheirbody language. Wealsoask ouralready trustedpartners abouttheirpriorexperienceswith thenew prospect, undertheassumption thatpastbehavior is arelatively reliablepredictoroffuture behavior. Taken together, theseexperiences formthereputationofour prospectivepartners. Theemergence ofelectronic marketsand othertypesofonlinetradingcommunities are changingtherules onmanyaspects ofdoingbusiness. Electronic marketspromisesubstantial gains in productivity and efficiencybybringingtogetheramuch largersetofbuyersandsellersandsubstantiallyreducingthesearch andtransactioncosts(Bakos, 1997; Bakos, 1998). Intheory,buyerscanthenlookforthebestpossibledeal andenduptransactingwithadifferentselleroneverysingletransaction. Noneofthesetheoretical gains willberealized, however, unlessmarketmakersandonlinecommunitymanagers findeffectivewaysto producetrustamongtheirmembers. Theproduction oftrust isthusemergingasan importantmanagement challenge inany organizationthatoperatesorparticipates inonlinetradingcommunities. Several propertiesofonlinecommunitieschallengetheaccumulatedwisdomofoursocieties onhowto producetrust. Formal institutions, such as legal guarantees, are less effective inglobal electronic markets, which spanmultiplejurisdictionswith, oftenconflicting, legal systems (Johnson and Post, 1996). For example, it is very difficult, and costly, forabuyerwhoresides in the U.S.A. toresolve a tradingdispute with a sellerwho lives in Indonesia. The difficulty is compoundedby the fact that, in many electronic markets, it isrelativelyeasy fortradingpartners to suddenly"disappear"andreappearunderadifferent online identity(Friedman andResnick, 1999; KoUock, 1999).
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