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Eliciting Honest Feedback in Electronic Markets

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  • Miller, Nolan

    (Harvard U)

  • Resnick, Paul

    (U of Michigan)

  • Zeckhauser, Richard

    (Harvard U)

Abstract

Recommender and reputation systems seek to inform potential customers by securing current consumers' feedback about products and sellers. This paper proposes a payment-based system to induce honest reporting of feedback. The system applies proper scoring rules to each buyer's report, looking to how well it predicts the report of a later buyer. Honest reporting proves to be a Nash Equilibrium. To balance the budget, the incentive payment to each buyer is charged to someone other than the one whose report that buyer is asked to predict. In addition, payment schemes can be scaled to induce appropriate effort by raters.

Suggested Citation

  • Miller, Nolan & Resnick, Paul & Zeckhauser, Richard, 2002. "Eliciting Honest Feedback in Electronic Markets," Working Paper Series rwp02-039, Harvard University, John F. Kennedy School of Government.
  • Handle: RePEc:ecl:harjfk:rwp02-039
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    References listed on IDEAS

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    1. Paul Resnick & Christopher Avery & Richard Zeckhauser, 1999. "The Market for Evaluations," American Economic Review, American Economic Association, vol. 89(3), pages 564-584, June.
    2. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
    3. Carl Shapiro, 1982. "Consumer Information, Product Quality, and Seller Reputation," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 20-35, Spring.
    4. Abhijit V. Banerjee, 1993. "The Economics of Rumours," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 309-327.
    5. Reinhard Selten, 1998. "Axiomatic Characterization of the Quadratic Scoring Rule," Experimental Economics, Springer;Economic Science Association, vol. 1(1), pages 43-61, June.
    6. Emir Shuford & Arthur Albert & H. Edward Massengill, 1966. "Admissible probability measurement procedures," Psychometrika, Springer;The Psychometric Society, vol. 31(2), pages 125-145, June.
    7. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    8. Adam Brandenburger & Ben Polak, 1996. "When Managers Cover Their Posteriors: Making the Decisions the Market Wants to See," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 523-541, Autumn.
    9. Michihiro Kandori, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 63-80.
    10. Steven Tadelis, 2002. "The Market for Reputations as an Incentive Mechanism," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 854-882, August.
    11. Prendergast, Canice, 1993. "A Theory of "Yes Men."," American Economic Review, American Economic Association, vol. 83(4), pages 757-770, September.
    12. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
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    Cited by:

    1. 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.
    2. Gary Bolton & Elena Katok & Axel Ockenfels, 2002. "Bridging the Trust Gap in Electronic Markets," Papers on Strategic Interaction 2002-26, Max Planck Institute of Economics, Strategic Interaction Group.
    3. Chrysanthos Dellarocas, 2003. "The Digitization of Word of Mouth: Promise and Challenges of Online Feedback Mechanisms," Management Science, INFORMS, vol. 49(10), pages 1407-1424, October.
    4. Dellarocas, Chrysanthos, 2003. "Efficiency and Robustness of Binary Feedback Mechanisms in Trading Environments with Moral Hazard," Working papers 4297-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    5. Axel Ockenfels, 2002. "Reputationsmechanismen auf Internet-Marktplattformen - Theorie und Empirie -," Papers on Strategic Interaction 2002-46, Max Planck Institute of Economics, Strategic Interaction Group.

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