Markets, Trust and Cultural Biases: Evidence from eBay
A body of research argues that cultural biases in trust may be responsible for economic backwardness. This paper studies the role of cultural biases in a real-world market with well-designed features intended to facilitate cooperation: eBay. We analyze the buyer's decision to leave negative feedback as an act of mistrust towards the seller. We introduce an identification strategy that leverages on the availability of data for millions of transactions. We compare feedback choices across pairs of buyers who made purchases under the exact same circumstances: i.e., they bought the same product, from the same seller, at the same price and observing the same information. As a result, any differences in feedback choices can be fully attributed to differences in buyer characteristics. We assess the importance of cultural biases through the correlation between feedback choices and measures of pro-social beliefs and behavior. Feedback choices are significantly correlated to many buyer characteristics but not with these pro-social measures. Our favorite interpretation is that, since all buyers can observe the seller's past behavior in detail, all buyers can reach a similar belief about the trustworthiness of the seller regardless of their cultural biases. This evidence illustrates how technological innovations in market design may help to overcome cultural barriers to economic development.
Number of Pages in PDF File: 29
Keywords: markets, reputation, culture, social capital, trust, institutions
JEL Classification: D63, D80, L86, Z10working papers series
Date posted: July 31, 2012 ; Last revised: April 3, 2014
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