Reputation Mechanisms

Working papers

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Recent advances in information technology are causing us to rethink many institutions that shape relationships in our everyday life. One important area where information technology can have a profound impact are the institutions that promote trust and cooperation among economic agents. The emergence of online communities has enabled the creation of low cost reputation networks of global reach. 

Online reputation mechanisms have emerged as a viable alternative to the more established institutions for building trust (such as formal contracts) in electronic environments where such contractual guarantees cannot be efficiently enforced. On eBay, for instance, an online feedback mechanism that encourages buyers and sellers to rate one another seems to have succeeded in encouraging cooperative behavior in an otherwise very risky trading environment.

The potential applications of online reputation mechanisms go beyond the relatively narrow domain of trust building in electronic marketplaces. The appeal of reputation mechanisms is that, when they work, they facilitate cooperation without the need for costly enforcement institutions. They have, therefore, the potential of providing more economically efficient outcomes in a wide range of moral hazard settings where societies currently rely on the threat of litigation in order to induce cooperation.

The rising importance of online reputation systems not only invites, but also necessitates rigorous research on their functioning and consequences. How do such mechanisms affect the behavior of participants in the communities where they are introduced? Do they induce socially beneficial outcomes? To what extent can their operators and participants manipulate them? How can communities protect themselves from such potential abuse? What mechanism designs work best in what settings? Under what circumstances can these mechanisms become viable substitutes (or complements) of more established institutions, such as contracts, legal guarantees and professional reviews? This is just a small subset of questions that motivate my work in this area.

   Working Papers
[PDF] Efficiency and Robustness of Binary Feedback Mechanisms in Trading Environments with Moral Hazard. Submitted for publication. An earlier version appears in Stanford Institute for Theoretical Economics (SITE) Summer Workshop: The Economics of the Internet, June 2002. 
This paper analyzes the effectiveness of simple, eBay-like, binary reputation mechanisms where buyers rate transactions as "good" or "bad" in inducing cooperative seller behavior in marketplaces with noisy monitoring of quality and moral hazard.

[PDF] Cooperation without Enforcement? A Comparative Analysis of Litigation and Online Reputation as Quality Assurance Mechanisms (with Y. Bakos). Submitted for publication. A shorter version appears in the Proceedings of the 23rd International Conference on Information Systems (ICIS), December 2002, Barcelona, Spain.
This paper compares the social efficiency of large scale reputation mechanisms to that of traditional litigation in terms of inducing cooperation in settings with moral hazard.

[PDF] The Digitization of Word-of-Mouth: Promise and Challenges of Online Feedback Mechanisms. Management Science, October, 2003.
This paper provides a critical survey of the field.

[PDF] Building Trust Online: The Design of Robust Reputation Reporting Mechanisms in Online Trading Communties. Information Society or Information Economy? A combined perspective on the digital era, Doukidis, G., Mylonopoulos, N. and Pouloudi, N. (Eds.), Idea Book Publishing (September 2003).
This paper discusses the problem of dishonest ratings and presents several techniques, based on robust statistics, that reduce the impact of such ratings on the accuracy of reputation mechanisms. 

[PDF] Efficiency through feedback-contingent fees and rewards in auction marketplaces with adverse selection and moral hazard. 3rd ACM Conference on Electronic Commerce (EC-03), June 9-12, 2003, San Diego, CA, USA
This paper explores the use of feedback-contingent listing fees as an incentive for inducing truthful announcement of quality and efficient production levels in an auction marketplace with sellers of multiple abilities.


[PDF] Goodwill Hunting: An Economically Efficient Online Feedback Mechanism for Environments with Variable Product Quality. Agent-Mediated Electronic Commerce IV. Designing Mechanisms and Systems, Padget, J., Shehory, O., Parkes, D., Sadeh, N., and Walsh, W. E. (Eds.) Lecture Notes in Computer Science 2351, Springer Verlag, pp. 238-252.
This paper introduces a novel reputation mechanism in which the center acts as a communication intermediary between buyers and sellers and induces truthful seller quality announcements by threatening to negatively distort future seller announcements if buyers report that the seller has inflated his quality in the current period.

[PDF] Analyzing the economic efficiency of eBay-like online reputation mechanisms. Proceedings of the 3rd ACM Conference on Electronic Commerce, Tampa, Florida, October, 2001.
This paper provides a decision-theoretic analysis of eBay's reputation mechanism and concludes that the empirically observed leniency when buyers rate sellers (less that 1% of eBay ratings are negative) is beneficial to the stability of the system.

[PDF] Immunizing online reputation reporting systems against unfair ratings and discriminatory behavior. Proceedings of the 2nd ACM Conference on Electronic Commerce, Minneapolis, MN, October 17-20, 2000.
This paper discusses the problem of dishonest ratings and proposes a number of statistical techniques that reduce the impact of such ratings on the accuracy of reputation mechanisms. 

   Research Collaborators
Yannis Bakos

   Related Research
Paul Resnick