Some Obvious Things About Internet Reputation Systems

Tom Slee: “Debates around the “sharing economy” have been driven by personal stories and broad claims. There are no personal stories here. Instead, this is a fairly dense step-by-step look at the internet reputation systems on which the sharing economy claims are based, and some predictions about the future of the sharing economy.
This post is the short version. If you find you are interested, you should probably read the attached PDF, which has a whole bunch of footnotes, with references, statistics, and even personal stories….
Internet reputation systems let individuals rate other individuals over the internet and provide recommendations based on those ratings. A new class of enterprise claims to use internet reputation systems to enable sharing of personal goods and services at unprecedented scale. Its rise has been announced by both Forbes, and by The Economist, according to which accommodation rental service Airbnb…

…is the most prominent example of a huge new “sharing economy”, in which people rent beds, cars, boats and other assets directly from each other, co-ordinated via the internet. …[T]echnology has reduced transaction costs, making sharing assets cheaper and easier than ever—and therefore possible on a much larger scale… social networks provide a way to check up on people and build trust; and online payment systems handle the billing.

The claim is that internet reputation systems solve two problems. One is coordination (can I find someone who has what I want, or wants what I have?) and the other is trust (can you trust the person on the other side of the exchange to keep their end of the bargain?). Sharing economy advocates claim, and I will return to this at the end of the essay, that it is both necessary and sufficient to solve these problems to unlock a large new economy of resource sharing.

Market-based incentives erode the effectiveness of reputation, and in this respect reputation is a cultural commons. In her TED talk, influential author Rachel Botsman says that in the new economy “reputation will be your most valuable asset”, but as reputation becomes an important asset, markets will grow around it and intermediaries will claim to help you boost your reputation, but these market-based incentives destroy the value of reputation as a mechanism for establishing trust. Mechanisms for buying and selling testimonies, for example, cause testimonies to lose their ability to discriminate between trustworthiness and opportunism because an opportunist with money could buy themselves a good reputation…
Internet reputation systems promise to create a global village by scaling up informal word-of-mouth reputation mechanisms for sharing and for creating trust, and so solve both the coordination and the trust problem for a variety of services which could not previously be exchanged. For sharing economy advocates, reputation is an alternative to regulation: law professor Lior Strahilevitz asks us to “imagine if every plumber, manufactured product, cell phone provider, home builder, professor, hair stylist, accountant, attorney, golf pro, and taxi driver were rated… In such a world, there would be diminished need for regulatory oversight and legal remedies because consumers would police misconduct themselves.”
Do internet reputation systems act as an effective signal of trustworthiness?…
So even in the absence of explicit gaming, peer-to-peer internet reputation systems do not solve the problem of trust.
Still, sharing economy web sites are growing fast. How are they succeeding if the peer-to-peer reputation systems fail to solve the problem of trust?
One reason is that coordination is useful in itself….
To be successful, the venture-capital-funded “sharing economy” will be forced to lose all those aspects of informal sharing that makes “sharing” attractive, and to keep those aspects that erode neighbourhoods, erode employment rights, and remove basic standards. And if they succeed, they will have used the language of sharing to bring about an unregulated, free-market, neoliberal economy.”