Reputation Inflation

50 Pages Posted: 22 May 2019

See all articles by Apostolos Filippas

Apostolos Filippas

Fordham University - Gabelli School of Business

John J. Horton

New York University (NYU) - Department of Information, Operations, and Management Sciences

Joseph Golden

Collage.com

Multiple version iconThere are 3 versions of this paper

Date Written: May 2019

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.

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Suggested Citation

Filippas, Apostolos and Horton, John J. and Golden, Joseph, Reputation Inflation (May 2019). NBER Working Paper No. w25857. Available at SSRN: https://ssrn.com/abstract=3391010

Apostolos Filippas (Contact Author)

Fordham University - Gabelli School of Business ( email )

113 West 60th Street
Bronx, NY 10458
United States

HOME PAGE: http://apostolos-filippas.com

John J. Horton

New York University (NYU) - Department of Information, Operations, and Management Sciences ( email )

44 West Fourth Street
New York, NY 10012
United States
6175952437 (Phone)

HOME PAGE: http://john-joseph-horton.com

Joseph Golden

Collage.com ( email )

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