December 10, 2017

Social Structure and Trust in Massive Digital Markets

International Conference on Information Systems (ICIS)

By: David Holtz, Diana Lynn MacLean, Sinan Aral

Abstract

Embedding games in networks creates trust when the network is sufficiently dense and/or the players are sufficiently central. But, while much existing research examines how formal reputation signals, like ratings or reviews, enhance trust and facilitate market transactions, almost no research explores the role of networked social signals in generating trust in such marketplaces. Here, we measure the extent to which situating transactions in networks can generate trust in online marketplaces with an empirical approach that provides external validity while eliminating many potential confounds. Using micro-level data on ~1.6M sales posts in Facebook buy and sell groups, we find that both increased network density and seller degree centrality increase two-sided interest in transacting. These results suggest that network structure can produce trust in marketplace transactions and imply that network-based trust mechanisms can offer an appealing alternative to formal reputation systems in mitigating moral hazard and adverse selection in digital marketplaces.