Arbitrary Inequality in Reputation Systems

Abstract

Trust is an essential condition for exchange. Large societies must substitute the trust traditionally provided through kinship and sanctions in small groups to make exchange possible. The rise of internet-supported reputation systems has been celebrated for providing trust at a global scale, enabling the massive volumes of transactions between distant strangers that are characteristic of modern human societies. Here we problematize an overlooked side-effect of reputation systems: Equally trustworthy individuals may realize highly unequal exchange volumes. We report the results of a laboratory experiment that shows emergent differentiation between ex ante equivalent individuals when information on performance in past exchanges is shared. This arbitrary inequality results from cumulative advantage in the reputation-building process: Random initial distinctions grow as parties of good repute are chosen over those lacking a reputation. We conjecture that reputation systems produce artificial concentration in a wide range of markets and leave superior but untried exchange alternatives unexploited.

Social dilemmas in the sharing economy

“…Without a reputation system, interacting with newcomers generates private information about the trustworthiness of these newcomers that may be worthwhile in the longer run, but in the presence of a reputation system, this information is no longer private and actors instead have an incentive to free-ride on others generating this information, which in theory makes establishing a good reputation harder for newcomers. Third, reputation systems may generate arbitrary inequality through "reputation cascades" (Frey and van de Rijt 2016). Because actors prefer to cooperate with partners who already have established a reputation of trustworthiness, interaction may concentrate on just a few actors who then receive a disproportional share of the benefits from exchange, to the expense of others who might be equally trustworthy.…”

Reputation systems and recruitment in online labor markets: insights from an agent-based model

“…However, earlier research on reputation systems (in both online and offline contexts) has shown that such systems have a tendency to create winner-takes-all dynamics, in which differences in candidates' reputations become disconnected from objective differences in ability and quality [19,25,41]. Indeed, emerging evidence suggests that many of the existing freelancing platforms are extremely unequal in terms of employees' earnings [56].…”

Exchange networks, markets and trust

“…A major benefit of networks is that they greatly protect members against opportunism and exchange hazards than market transactions (e.g., Bowles & Gintis, 2004;Erikson & Samila, 2015;Granovetter, 2017;Jackson, Rogers, & Zenou, 2017;Kollock, 1994;Raub, Buskens, & Frey, 2013). At the same time, large-scale market interactions increase the possibilities of benefiting from economies of scale, specialisation and gains from trade (e.g., Algan & Cahuc, 2010;Bulte, Kontoleon, List, Turley, & Voors, 2017;Dixit, 2004;Frey & Van de Rijt, 2016;Greif, 2006;Smith, 2017Smith, [1776).…”