Entries Tagged 'Trust' ↓

Gefen, David and Paul A. Pavlou, "An Inverted-U Theory of Trust:  The Moderating Role of Perceived Regulatoary Effectiveness of Online Marketplaces," (2006).

Abstract.  Past research has widely regarded trust as unconditionally facilitating transaction behavior, and perceived risk as unconditionally detracting from it. This study advocates the necessity to examine trust and perceived risk within the broader perspective of the societal context. We propose the perceived regulatory effectiveness of online marketplaces to moderate the impact of trust on transaction behavior. More specifically, we hypothesize that the degree to which buyer’s trust affects transaction intentions will vary in an inverted U manner depending on the perception buyers have in the regulatory effectiveness of the online marketplace. The impact of trust on transaction intentions will increase as the buyer’s perceived regulatory effectiveness increases from low to medium levels, but it will decrease as the buyer’s perceived effectiveness increases from medium to high levels. Moreover, the perceived regulatory effectiveness of the online marketplace is also hypothesized to reduce the impact of perceived risk on transaction intentions. These moderating effects were examined and empirically supported in the context of eBay’s and Amazon’s online auction marketplaces. Implications for integrating the perceived regulatory effectiveness of online marketplaces into existing trust and risk models are discussed.  Download pdf.

Pavlou, Paul A. and Angelika Dimoka, "The Nature and Role of Feedback Text Comments in Online Marketplaces: Implications for Trust Building and Price Premiums," (March 2006).

Abstract.  For online marketplaces to succeed and prevent a market of ‘lemons’, their feedback mechanisms (reputation systems) must be able to differentiate among sellers and create price premiums for trustworthy ones (as returns to their superior reputation). However, the literature has solely focused on numerical (positive and negative) feedback ratings, alas ignoring the role of feedback text comments. These text comments are proposed to convey useful reputation information about a seller’s prior transactions that cannot be adequately captured with simple numerical ratings. Specifically, this study examines the content of feedback text comments and their role in engendering buyer’s trust in a seller’s benevolence and credibility. In turn, benevolence and credibility are proposed to influence the price premiums that a reputable seller receives from buyers.

This paper utilizes content analysis to quantify over 10,000 publicly-available feedback text comments of 420 sellers in eBay’s online auction marketplace, and match them with primary data from 420 buyers that recently transacted with these 420 sellers. These dyadic data show that evidence of extraordinary past seller behavior contained in the sellers’ feedback text comments creates price premiums for reputable sellers by engendering buyer’s trust in the sellers’ benevolence and credibility (controlling for the impact of numerical ratings). Interestingly, the addition of benevolence helps explain a higher variance in price premiums (R2=50%) compared to the literature (R2=20-30%). By showing the economic value of feedback text comments through trust in a seller’s benevolence and credibility, this study helps explain the apparent success of online marketplaces that rely on seller differentiation to prevent a market of ‘lemon’ sellers.

The paper discusses the study’s theoretical and practical implications for better understanding the nature and role of feedback text comments, benevolence and credibility, and price premiums in online marketplaces.  Download pdf.

Pavlou, Paul A., Huigang Liang, and Yajiong Xue, "Understanding and Mitigating Uncertainty in Online Exchange Relationships: A Principal-Agent Perspective," (January 2006).

Abstract.  Despite a decade since the inception of B2C e-commerce, the uncertainty of the online environment still makes many consumers reluctant to engage in online exchange relationships. Even if uncertainty has been widely touted as the primary barrier to online transactions, the literature has viewed uncertainty as a "background" mediator with insufficient conceptualization and measurement. To better understand the nature of uncertainty and mitigate its potentially harmful effects on B2C e-commerce adoption (especially for important purchases), this study draws upon and extends the principal-agent perspective to identify and propose a set of four antecedents of perceived uncertainty in online buyer-seller relationships – perceived information asymmetry, fears of seller opportunism, information privacy concerns, and information security concerns - which are drawn from the agency problems of adverse selection (hidden information) and moral hazard (hidden action).

To mitigate uncertainty in online exchange relationships, this study integrates the principal-agent perspective with information systems, marketing, and sociological theories to propose a set of four mitigating factors – trust, website informativeness, product diagnosticity, and social presence - that enable online transactions by overcoming the problems of hidden information and hidden action through the logic of signals and incentives.

The proposed structural model is empirically tested with longitudinal data from 521 consumers for two products (prescription drugs and books) that differ on their level of purchase importance. The results support our model, delineating the process by which buyers engage in online exchange relationships by mitigating uncertainty. Interestingly, the proposed model is validated for two distinct targets, a specific website and a class of websites.

Implications for understanding and facilitating online exchange relationships for different types of purchases, mitigating uncertainty perceptions, and extending the principal-agent perspective are discussed.  Download pdf.

Hoffman, Donna L., Thomas P. Novak, and Marcos A. Peralta, "Building Consumer Trust in Online Environments: The Case for Information Privacy," (December 1998).

This paper appears in print as:  Hoffman, Donna L., Thomas P. Novak, and Marcos A. Peralta, "Building Consumer Trust Online," Communications of the ACM, Volume 42, Number 4, April, 80-85.

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