Inflated reputations: Uncertainty, leniency & moral wiggle room in trader feedback systems

Feedback systems associated with Internet markets are known to be subject to strategic manipulation that can create distortions in the reputation information provided to traders. The experiment we present suggests that distortions can emerge from sources that have heretofore been overlooked: the leniency and moral wiggle room that arise when there is uncertainty about the source of transaction problems. The control the laboratory affords permits us to separate the influence exerted by uncertainty per se from that implied by behavioral leniency. We observe that uncertainty about seller responsibility leads to leniency behaviors that reduce the informativeness of the feedback system, thereby diminishing the incentives for honest seller behavior. Under uncertainty, buyers pay about the same prices but get significantly less.