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Optimal Windows for Aggregating Ratings in Electronic Marketplaces

Author

Listed:
  • Christina Aperjis

    () (Social Computing Lab, Hewlett-Packard Laboratories, Palo Alto, California 94304)

  • Ramesh Johari

    () (Department of Management Science and Engineering, Stanford University, Stanford, California 94305)

Abstract

Aseller in an online marketplace with an effective reputation mechanism should expect that dishonest behavior results in higher payments now whereas honest behavior results in a better reputation--and thus higher payments--in the future. We study the Window Aggregation Mechanism, a widely used class of mechanisms that shows the average value of the seller's ratings within some fixed window of past transactions. We suggest approaches for choosing the window size that maximizes the range of parameters for which it is optimal for the seller to be truthful. We show that mechanisms that use information from a larger number of past transactions tend to provide incentives for patient sellers to be more truthful but for higher-quality sellers to be less truthful.

Suggested Citation

  • Christina Aperjis & Ramesh Johari, 2010. "Optimal Windows for Aggregating Ratings in Electronic Marketplaces," Management Science, INFORMS, vol. 56(5), pages 864-880, May.
  • Handle: RePEc:inm:ormnsc:v:56:y:2010:i:5:p:864-880
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    File URL: http://dx.doi.org/10.1287/mnsc.1090.1145
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    References listed on IDEAS

    as
    1. Lingfang (Ivy) Li, 2010. "Reputation, Trust, and Rebates: How Online Auction Markets Can Improve Their Feedback Mechanisms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(2), pages 303-331, June.
    2. Martin W. Cripps & George J. Mailath & Larry Samuelson, 2004. "Imperfect Monitoring and Impermanent Reputations," Econometrica, Econometric Society, vol. 72(2), pages 407-432, March.
    3. Paul Resnick & Richard Zeckhauser & John Swanson & Kate Lockwood, 2006. "The value of reputation on eBay: A controlled experiment," Experimental Economics, Springer;Economic Science Association, vol. 9(2), pages 79-101, June.
    4. Chrysanthos Dellarocas & Charles A. Wood, 2008. "The Sound of Silence in Online Feedback: Estimating Trading Risks in the Presence of Reporting Bias," Management Science, INFORMS, vol. 54(3), pages 460-476, March.
    5. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
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    Keywords

    reputation mechanisms; ratings; online markets;

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