The Impact of Fraud on Reputation Systems

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