7 research outputs found
Reputation, Trust, and Rebates: How Online Auction Markets Can Improve Their Feedback Mechanisms
No full textTrust and trustworthiness are crucial to the survival of online markets, and reputation systems that rely on feedback from traders help sustain trust. However, in current online auction markets only half of the buyers leave feedback after transactions, and nearly all of it is positive. In this paper, I propose a mechanism whereby sellers can provide rebates to buyers contingent on buyers provision of reports. Using a game theoretical model, I show how the rebate incentive mechanism can increase reporting. In both a pure adverse selection model, and a model with adverse selection and moral hazard, there exists a pooling equilibrium where both good and bad sellers choose the rebate option, even though their true types are revealed through feedback. In the presence of moral hazard, the mechanism induces bad sellers to improve the quality of the contract.
Decision Making Using Rating Systems: When Scale Meets Binary
Get PDFRating systems measuring quality of products and services (i.e., the state of the world) are
widely used to solve the asymmetric information problem in markets. Decision makers typically
make binary decisions such as buy/hold/sell based on aggregated individuals' opinions presented
in the form of ratings. Problems arise, however, when different rating metrics and aggregation
procedures translate the same underlying popular opinion to different conclusions about the
true state of the world. This paper investigates the inconsistency problem by examining the
mathematical structure of the metrics and their relationship to the aggregation rules. It is
shown that at the individual level, the only scale metric (1,. . . ,N) that reports people's opinion
equivalently in the a binary metric (-1, 0, 1) is one where N is odd and N-1 is not divisible by
4. At aggregation level, however, the inconsistencies persist regardless of which scale metric is
used. In addition, this paper provides simple tools to determine whether the binary and scale
rating systems report the same information at individual level, as well as when the systems
di®er at the aggregation level
