Theoretical propositions stressing the importance of trust, reciprocity, and reputation for cooperation in social exchange relations are deeply rooted in classical sociological thought. Today’s online markets provide a unique opportunity to test these theories using unobtrusive data. Our study investigates the mechanisms promoting cooperation in an online-auction market where most transactions can be conceived as one-time-only exchanges. We first give a systematic account of the theoretical arguments explaining the process of cooperative transactions. Then, using a large dataset comprising 14,627 mobile phone auctions and 339,517 DVD auctions, we test key hypotheses about the effects of traders’ reputations on auction outcomes and traders’ motives for leaving feedback. Our statistical analyses show that sellers with better reputations have higher sales and obtain higher prices. Furthermore, we observe a high rate of participation in the feedback system, which is largely consistent with strong reciprocity—a predisposition to unconditionally reward (or punish) one’s interaction partner’s cooperation (or defection)—and altruism—a predisposition to increase one’s own utility by elevating an interaction partner’s utility. Our study demonstrates how strong reciprocity and altruism can mitigate the free-rider problem in the feedback system to create reputational incentives for mutually beneficial online trade.

The emergence of large-scale cooperation in humans poses a major puzzle for the social and behavioural sciences. Reputation formation—individuals’ ability to share information about others’ deeds and misdeeds—has been found to promote cooperation. However, these findings are mostly based on small-scale laboratory and field experiments or on data gathered from online markets embedded in functioning legal systems. Using a unique data set of transactions in a cryptomarket for illegal drugs, we analyse the effect of buyers’ ratings of finished transactions on sellers’ business success. Cryptomarkets are online marketplaces in the so-called Dark Web, which can only be accessed by means of encryption software that conceals users’ identities and locations. The encryption technology makes it virtually impossible for law enforcement to intervene in these market exchanges. We find that sellers with a better rating history charge higher prices and sell their merchandise faster than sellers with no or a bad rating history. Our results demonstrate how reputation creates real incentives for cooperative behaviour at a large scale, in the absence of law enforcement and among anonymous actors with doubtful intentions. Our results thus challenge the institutional and social embeddedness of actors as necessary preconditions for the emergence of social order in markets.

Norm violations can be contagious. Previous research analyzed two mechanisms of why knowledge about others’ norm violations triggers its spread: (1) actors lower their subjective beliefs about the probability or severity of punishment or (2) they condition their compliance on others’ compliance. While earlier field studies could hardly disentangle both effects, we use a laboratory experiment which eliminates any punishment threat. Subjects (n = 466) can throw a die and are paid according to their reported number. Our design rules out any possibility of personal identification so that subjects can lie about their thrown number and claim inflated payoffs without risking detection. The aggregate distribution of reported payoffs allows the estimation of the extent to which the honesty norm is violated. We compare two treatment conditions in which subjects are informed about lying behavior of others with a control condition without information feedback. Observations from a subsequent die throw reveal that knowledge about liars triggers the spread of lying compared to the control condition. Results from a follow-up experiment show that this effect is moderated by subjects’ beliefs about the prevalence of norm violations of others. Our results demonstrate the contagiousness of norm violations, where actors imitate norm violations of others under the exclusion of strategic motives.

Social control and the enforcement of social norms glue a society together. It has been shown theoretically and empirically that informal punishment of wrongdoers fosters cooperation in human groups. Most of this research has focused on voluntary and uncoordinated punishment carried out by individual group members. However, as punishment is costly, it is an open question as to why humans engage in the punishment of wrongdoers even in one-time-only encounters. While evolved punitive preferences have been advocated as proximate explanations for such behaviour, the strategic nature of the punishment situation has remained underexplored. It has been suggested to conceive of the punishment situation as a volunteer's dilemma (VOD), where only one individual's action is necessary and sufficient to punish the wrongdoer. Here, we show experimentally that implementing the punishment situation as a VOD sustains cooperation in an environment where punishers and non-punishers coexist. Moreover, we show that punishment-cost heterogeneity allows individuals to tacitly agree on only the strongest group member carrying out the punishment, thereby increasing the effectiveness and efficiency of social norm enforcement. Our results corroborate that costly peer punishment can be explained without assuming punitive preferences and show that centralized sanctioning institutions can emerge from arbitrary individual differences.