Trust in Online Markets - Condliffe Memorial Lecture

Berkeley's Professor Steve Tadelis is this year's Condliffe Memorial Lecturer at Canterbury's economics department.

You can register here for the lecture scheduled for 5.30, Monday 1 April, in the Undercroft. Canterbury's blurb:

The growth of online electronic commerce and markets is attributed not only to their ease of use but also to the fact that they provide reputation and feedback systems that help create trust. Recent research has exposed, however, that feedback systems are biased, suffer from “grade inflation”, and do not clearly differentiate between higher and lower quality sellers. This lecture highlights recent research that addresses these concerns and presents ways to increase the effectiveness of online reputation systems and markets.

Tadelis spent time both at Amazon and at eBay's research lab. His bio at Berkeley explains why you might want to fly out to Christchurch for this one, if you're in the industry here in NZ:

These days my research primarily revolves around e-commerce and the economics of the internet. During the 2016-2017 academic year I was on leave at Amazon, where I applied economic research tools to a variety of product and business applications, working with technologists, computer and ML scientists, and business leaders. During the 2011-2013 academic years I was on leave at eBay research labs, where I hired and led a team of research economists who focused on the economics of e-commerce, with particular attention to creating better matches of buyers and sellers, reducing market frictions by increasing trust and safety in eBay's marketplace, understanding the underlying value of different advertising and marketing strategies, and exploring the market benefits of different pricing structures. Aside from the economics of e-commerce, my main fields of interest are the economics of incentives and organizations, industrial organization, and microeconomics. Some of my past research aspired to advance our understanding of the roles played by two central institutions---firms and contractual agreements---and how these institutions facilitate the creation of value. Within this broader framework, I explored firm reputation as a valuable, tradable asset; the effects of contract design and organizational form on firm behavior with applications to outsourcing and privatization; public and private sector procurement and award mechanisms; and the determinants of trust. 

Some of his relevant papers and working papers:

• Reputation and Feedback Systems in Online Platform Markets  
• Returns to Consumer Search: Evidence from eBay  
• Two-Sided e-commerce Marketplaces and the Future of Retailing
• Buying Reputation as a Signal of Quality: Evidence from an Online Marketplace
• The Limits of Reputation in Platform Markets: An Empirical Analysis and Field Experiment

Marital optimisation

If the experimentalists stuck me in a lab playing standard dictator and trust games with Susan, here's the play:

• Dictator Game: I am strictly indifferent as to how much I send her or she sends me.
• Trust Game: I send her everything and am strictly indifferent as to how much she sends back; I expect she'd send me everything in the sender role and expect she'd prefer a split as a signal of caring but otherwise wouldn't much worry about it as it all winds up in the same place.

I do not understand the drawing of strong conclusions about couples from how much they send in the dictator game. Either I, or Sue, might choose amounts just based on amusement. And similarly in the recipient role in the trust game. Even if the stakes are very large relative to income, we jointly decide how things get spent afterwards. If the stakes are small, money in her pocket is money that isn't spent out of the joint account later, and vice-versa.

Carolina Castilla has a paper out in the May AER running trust and dictator games with spouses in India, with stakes of up to 80% of daily household income. Receivers send back a bit over half of what they receive; when playing as dictator, they send back half. Senders send over a bit over half. There's lots of proposed explanations for the less-than-optimal sending, none of which are the obvious "Maybe they don't trust the experimenter to actually triple the money or not to pocket some of what's in the envelope." 

The main interesting finding (in the ungated and more extensive working paper) is that in households where the man spends a lot on tobacco, the wife sends over less money - potentially indicating problems in household bargaining. And, in households where the wife handles the kids' education expenses, the husband sends over more - presumably saving him the trouble of handing her a bigger share after the experiment to pay the school bills. None of that makes it into the the AER version, presumably because there are rather a few just-so stories floating around. 

The World Bank's Development Blog discusses the paper, lauding the generally higher trust exhibited by married partners as compared to stranger partnerings. Where we don't know how well the subjects trust the experimenters in countries with no small issues with corruption, trust in the experimenter might limit the extent to which within-couple trust can be exhibited in the experiment. 

Overcome your Oxtyocin

Stephen Hickson forwards this email that made it through to our undergrad economics tutors. It's a nice little scam; hopefully, none of our tutors went for it.* Here it is:

Hello,

How are you doing today? As for me I am okay and my son is doing good. I would be more than happy if you can handle Mark very well for me because his all I have left ever since his Mother died four years ago. Payment for the lessons will be made upfront like I told you and will be by cheque. In view of this I will need you to email me the information required to send the payment as I will not like to send the payment to a wrong location.

I contacted his step Mother and she made me understood that she is not in a good financial condition to help the situation and this makes me to think of an alternative because am off-shore as a petrol chemical engineer and can not be able to make any payment arrangement directly to you. I will equally want your first meeting with my son and cousin on Second week of April for proper arrangement. Further information needed about my son will be giving to you on your first day of meeting my son and my cousin. I will advice you meet in a library because of your reasons.

I discussed this with my cohort who has accepted to issue you the payment his owing me in form of cheque. Meanwhile, the cheque he will be sending you will be ($3,000) which is a bit more than the cost for the 12 weeks ($600) Right? lessons. So please, I will appreciate your focus in rendering the service. As soon as you receive the cheque, I will like you to deduct the money that accrues to the cost of lessons, also the cost of the material needed for the tutorial service and you will assist me to send the rest balance to my cousin.

The remaining balance will cover the funds for Mark and my cousin's flight expenses down to the state and also to cover his living expenses in state. I think,I should be able to trust you with the remaining balance? I will give you the details of my cousin that you will send the balance of the money to as soon as you receive the cheque. Here are some of the details I will need for final assurance of the payment to you.

1. Full Name
2. Mailing address,
3. your direct telephone number

Once you get back to me with all the above details, the payment will be issued out immediately and it will be sent to you . Hope to hear from you as soon as you can and I am sure you will find my son as a good student.

It's a classic scam: demonstrate your trust in the recipient (by sending the cheque with what's very likely an overpayment) and expect the trust to be reciprocated (by wiring the balance back) before the recipient figures out that the cheque has bounced.

It's then a variant on the kind of scam highlighted in Paul Zak's TED talk around the 9 minute mark:

   

Being trusted gives you a little oxytocin boost, making you more likely to reciprocate. So be careful of oxytocin rushes.

Zak does interesting work; here's a summary at The Guardian. But where he talks a lot about how he likes to hug people to get (and to give!) Oxytocin boosts; I have more fun wondering whether electronics retailers could make a buck by having aerosolized Oxytocin near the spot where salespeople try to convince you of the merits of long-term warranties. 

Economists giving out hugs... Folks will think the whole profession's gone soft (mutter grumble)...

* They'd get part-marks for trying to scam the scammer: though that too is not without risk.