How Often Should Reputation Mechanisms Update a Trader's Reputation Profile?

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 paper 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...

• Type: Journal
• Year: 2006
• Where: ISR
• Authors: Chrysanthos Dellarocas
• Keywords: Distributed And Parallel Computing, ISR 2006, Market Efficiency, Reputation Mechanism, Reputation Mechanism Design