How Do Reputation Systems Affect Commitment and Social Cohesion in Economic Exchange?

With the rise of the platform economy, economic interaction increasingly takes place under the regime of online reputation systems, which reduce uncertainty by publicizing others’ past behavior. Uncertainty, however, is central to the development of stable and cohesive relationships. The fundamental concerns are that reputation systems render personal, stable relationships obsolete and erode social cohesion. Grounded in social exchange theory, we propose two mechanisms through which reputation systems reduce commitment and inhibit social cohesion. These hypotheses are tested in a lab experiment simulating economic exchange with and without reputation systems. Contrary to our theoretical expectations, we find that reputation systems slightly reduce interactions between strangers and do not inhibit the development of cohesive ties. Although reputation systems reduce the expressive value of cooperation, they offset this undesired effect by increasing cooperation. Alleviating concerns about the social ramifications of the platform economy, the relationship structure appears largely unaffected by the reputation system. We conclude that actors interpret acts of cooperation differently in the presence of a reputation system, and market participants develop relationships not for purely functional reasons but as emotion-based by-products of economic exchange.