A solution to marketplace information asymmetries is to have trading partners publicly rate each other post-transaction. Many have shown 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.
The following paper will be presented: Reputation Inflation
John Horton joined New York University Stern School of Business in September 2013 as an assistant professor of information, operations and management sciences. John’s research focuses on the intersection of labor economics, market design and information systems. He is particularly interested in improving the efficiency and equity of matching markets. After completing his Ph.D. and prior to joining Stern, John served for two years as the staff economist for oDesk, an online labor market. He received a B.S. in mathematics from the United States Military Academy at West Point and a Ph.D. in public policy from Harvard University.