Measuring Trust with Market Data

Abstract:     
We exploit data on groups of eBay users who bought exactly the same product - based on the same information, from the same seller and at the same price - and we use the individual decision to leave (nonpositive) feedback as a behavioral measure of mistrust. A simple model shows how the feedback choice is driven by two important factors related to trust: the ex-ante probability belief that the seller is trustworthy, and the desire for reciprocation when feeling betrayed. Our behavioral measure of trust is unique in the sense that it originates from a naturally-occurring market. We find that several measures of trust used in the literature - like the answer to a general question “do you trust others” - do not have the expected correlation with trusting behavior on eBay. Our preferred interpretation is that cultural forces may have limited importance in presence of good institutions - in this case, electronic markets with reputation-building mechanisms.

Number of Pages in PDF File: 25

Keywords: markets, reputation, culture, social capital, trust, institutions

JEL Classification: D63, D80, L86, Z10

working papers series