imnotteixeira
commented
3 years ago This paper’s principal finding is that reputation mechanisms can induce higher cooperation and efficiency if, instead of publishing new ratings as soon as they are received, they only update a trader’s public reputation profile every k transactions with a summary statistic of a trader’s last ratings. In settings with noise, infrequent updating increases efficiency because it decreases the adverse consequence of spurious negative ratings. At the same time, however, infrequent updating increases a seller’s short-term profits from cheating and thus the minimum future punishment threat that can sustain cooperation
https://www.scopus.com/record/display.uri?eid=2-s2.0-33748549921&origin=resultslist
Reputation mechanisms have become an important component of electronic markets, helping to build trust and elicit cooperation among loosely connected and geographically dispersed economic agents. Understanding the impact of different reputation mechanism design parameters on the resulting market efficiency has thus emerged as a question of theoretical and practical interest. Along these lines, this note studies the impact of the frequency of reputation profile updates on cooperation and efficiency. The principal finding is that, in trading settings with pure moral hazard and noisy ratings, if the per-period profit margin of cooperating sellers is sufficiently high, a mechanism that does not publish every single rating it receives but rather only updates a trader's public reputation profile every k transactions with a summary statistic of a trader's most recent k ratings can induce higher average levels of cooperation and market efficiency than a mechanism that publishes all ratings as soon as they are posted. This paper derives expressions for calculating the optimal profile updating interval k, discusses the implications of this finding for existing systems, such as eBay, and proposes alternative reputation mechanism architectures that attain higher maximum efficiency than the, currently popular, reputation mechanisms that publish summaries of a trader's recent ratings. © 2006 INFORMS