Can Online Trading Survive Bad Mouthing? An Experimental Investigation

Abstract

We use controlled lab experiments to test whether the market efficiency being affected by unfair negative ratings, and whether announcing the percentage of unfair ratings in the market makes any difference. We find that the market efficiency is higher than no rating information case even when unfair ratings and ambiguous ratings are present. We also find that buyers behave differently when the unfair rating information is known and when the information is unknown; however, comparing with the market with fair ratings, there is no statistically significant difference in the market efficiency whenever the percentage of unfair ratings is known or unknown.

Keywords: trust and trustworthiness, unfair rating, reputation systems, ambiguity, experiment

JEL Classification: C92, D03, L81