The Impact of Fraud on Reputation Systems

27 Pages Posted: 12 Jan 2021 Last revised: 13 Jun 2022

See all articles by Jan Philipp Krügel

Jan Philipp Krügel

University of the German Federal Armed Forces - Department of Economics; University of the German Federal Armed Forces - Department of Economics; DFG Research Group 2104

Fabian Paetzel

Department of Economics, Institute of Management and Economics, Clausthal University of Technology

Date Written: June 11, 2022

Abstract

Reputation systems, where individuals rate each other, can increase trust and improve efficiency. However, rating fraud is a major problem, especially on online platforms. Using a
repeated public good game with a reputation system, we experimentally investigate the circumstances under which rating fraud undermines the functioning of the reputation system and reduces efficiency. We find that the ability to manipulate feedback received from others generally reduces the reliability of average ratings compared to a control treatment where rating fraud is not possible. When manipulation is possible and costless, rating fraud is widespread, average ratings become less reliable, expectations are lower, and both cooperation and efficiency
are significantly reduced. However, when there is a cost to manipulation, fraud is reduced, average ratings are more reliable and contributions and efficiency are not affected.

Keywords: Reputation Systems, Rating Fraud, Reliability of Ratings, Efficiency

JEL Classification: C72, C91, D83, L14

Suggested Citation

Krügel, Jan Philipp and Krügel, Jan Philipp and Paetzel, Fabian, The Impact of Fraud on Reputation Systems (June 11, 2022). Available at SSRN: https://ssrn.com/abstract=3710843 or http://dx.doi.org/10.2139/ssrn.3710843

Jan Philipp Krügel (Contact Author)

University of the German Federal Armed Forces - Department of Economics ( email )

Holstenhofweg 85
Hamburg, 22043
Germany

HOME PAGE: http://https://www.hsu-hh.de/be/team

University of the German Federal Armed Forces - Department of Economics; DFG Research Group 2104 ( email )

Holstenhofweg 85
Hamburg, 22043
Germany

HOME PAGE: http://https://www.hsu-hh.de/be/team

Fabian Paetzel

Department of Economics, Institute of Management and Economics, Clausthal University of Technology ( email )

Clausthal-Zellerfeld, D-38678
Germany

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