Trust Among Strangers in Internet Transactions:
Empirical Analysis of eBay's Reputation System

Paul Resnick and Richard Zeckhauser.

Originally a working Paper for the NBER workshop on empirical studies of electronic commerce. Revised version to appear as:

Resnick, Paul and Richard Zeckhauser (2002). Trust Among Strangers in Internet Transactions: Empirical Analysis of eBay's Reputation System. The Economics of the Internet and E-Commerce. Michael R. Baye, editor. Volume 11 of Advances in Applied Microeconomics. Amsterdam, Elsevier Science. pp. 127-157.

PDF format (working paper version of Feb. 6 2001)


Reputations that are transmitted from person to person can deter moral hazard and discourage entry by bad types in markets where players repeat transactions but rarely with the same player. On the Internet, information about past transactions may be both limited and potentially unreliable, but it can be distributed far more systematically than the informal gossip among friends that characterizes conventional marketplaces.

One of the earliest and best known Internet reputation systems is run by eBay, which gathers comments from buyers and sellers about each other after each transaction. Examination of a large data set from 1999 reveals several interesting features of this system, which facilitates many millions of sales each month. First, despite incentives to free ride, feedback was provided more than half the time. Second, well beyond reasonable expectation, it was almost always positive. Third, reputation profiles were predictive of future performance. However, the net feedback scores that eBay displays encourages Pollyanna assessments of reputations, and is far from the best predictor available. Fourth, although sellers with better reputations were more likely to sell their items, they enjoyed no boost in price, at least for the two sets of items that we examined. Fifth, there was a high correlation between buyer and seller feedback, suggesting that the players reciprocate and retaliate.