Tit for tat

Anyone who buys goods from internet auctioneers is often buying a pig in the poke. Ratings from other users are the only clue as to whether a seller is trustworthy. For auctioneers to be successful, it is therefore essential that buyers and sellers make the effort to provide this feedback.

The group of researchers led by Andreas Diekmann, Professor of Sociology, studied more than 350,000 mobile phone and DVD auctions on the German auction platform ebay.de. Among other things, they examined which mechanisms made buyers and sellers rate each other in virtual markets. One of the most important theories that could be confirmed on the basis of the extremely large dataset was: internet auction ratings follow reciprocity norms – in other words, the “tit for tat” principle. This means that a good rating by one party is generally reciprocated by a good rating from the other and, conversely, poor feedback is provided in response to poor ratings – whereby good ratings far outweigh the bad.

Not strictly economical behaviour

This behaviour seen in online auction ratings does not strictly follow economical rules, which would suggest that the rating parties always have only their own interests – i.e. their own good rating – in mind and shy away from any extra effort such as rating the other party unnecessarily. However, data examined by researchers shows that many people make the effort to provide feedback to reward good ratings and take their revenge for poor ones.

The researchers’ analysis showed that the second party usually leaves his or her feedback quickly after the first party has done so, even though the first party has generally already secured a good rating and the buyer and seller normally only interact with each other on a one-off basis. The second party would therefore not have any consequences to worry about and, from an economical perspective, could refrain from leaving feedback.

The lubricating oil of the rating system

“The ‘tit for tat’ principle is clearly anchored in human nature,” says Diekmann. He describes this reciprocal behaviour as the “lubricating oil of the rating system” which ultimately enables the market to function smoothly. The percentage of rated auctions was also noticeably high: 80 to 90% of the auctions studied were rated by at least one party.

The researchers discovered that the motivation to leave feedback at all can vary considerably. They identified clearly egoistic motives aimed at improving one’s own reputation while also discovering altruistic reasons: the parties wanted to contribute to the feedback system, something that is ultimately beneficial to everyone. Strategic motives also played a part. These come into effect if, for example, a seller leaves positive feedback because he or she expects it to be reciprocated by the buyer. Or if someone gives a poor rating just before the feedback deadline, in the hope that it won’t be returned. The latter, however, only applied to a relatively small group.

A good reputation pays off

In addition to the mechanisms concerning how the ratings come about, the ETH sociologists also intensively studied the effects of the ratings. On the basis of a large data set, they were able to show that it really pays off for sellers to invest in their good reputation: those with good ratings sold more products at higher prices than those with poorer ratings selling the same items.

Due to the solid pool of data, the researchers were even able to indicate the effects that a good reputation gained through positive feedback has on prices. This reputation premium also serves as an incentive for the seller to continue to be cooperative. “Reputation is an important factor that keeps the system running,” says Stefan Wehrli, co-author of the study.

Bolts to the rating system

Since Diekmann and his colleagues collected the data for their publication in the American Sociological Review, eBay – without any relation to the present study – has adjusted its feedback system. Buyers and sellers no longer rate each other in exactly the same way: if a buyer gives a negative rating, the seller can no longer leave negative feedback. This stops customers from leaving a positive rating out of fear of receiving negative ratings. However, according to the researchers, it has no other considerable impact on the eBay user’s motivation to leave feedback.

Diekmann’s team carries out fundamental research and verifies theories relating to trust, reciprocity and reputation. This paves the way to make reputation systems like those used in various areas on the internet even more trustworthy in the future. “It is important here to harmonise the technical possibilities, the rules and the human motives,” says Diekmann.