Working Paper: NBER ID: w25857
Authors: Apostolos Filippas; John J. Horton; Joseph M. Golden
Abstract: A solution to marketplace information asymmetries is to have trading partners publicly rate each other post-transaction. Many have shown that these ratings are effective; we show that their effectiveness deteriorates over time. The problem is that ratings are prone to inflation, with raters feeling pressure to leave “above average” ratings, which in turn pushes the average higher. This pressure stems from raters’ desire to not harm the rated seller. As the potential to harm is what makes ratings effective, reputation systems, as currently designed, sow the seeds of their own irrelevance.
Keywords: Reputation Systems; Feedback Inflation; Online Marketplaces
JEL Codes: D02; D47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| effectiveness of ratings (C52) | ratings inflation (E31) |
| ratings inflation (E31) | satisfaction of raters (C52) |
| public feedback scores increase (D79) | ratings inflation (E31) |
| private feedback scores decrease (C92) | public feedback scores increase (D79) |
| costs of negative feedback (D62) | ratings inflation (E31) |
| market fundamentals (G10) | ratings inflation (E31) |