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The Social Costs of Cheap Pseudonyms: fostering cooperation on the Internet

  • Eric Friedman


    (Rutgers University)

  • Paul Resnick


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    On the Internet it is easy for someone to obtain a new identity. This introduces opportunities to misbehave without paying reputational consequences. A large degree of cooperation can still emerge, through a convention in which newcomers ``pay their dues'' by accepting poor treatment from players who have established positive reputations. One might hope for an open society where newcomers are treated well, but there is an inherent social cost in making the spread of reputations optional. We prove that no equilibrium can sustain significantly more cooperation than the dues-paying equilibrium in a repeated random matching game with a large number of players in which players have finite lives and the ability to change their identities, and there is a small but nonvanishing probability of mistakes. Although one could remove the inefficiency of mistreating newcomers by disallowing anonymity, this is not practical or desirable in a wide variety of transactions. We discuss the use of entry fees, which permits newcomers to be trusted but excludes some players with low payoffs, thus introducing a different inefficiency. We also discuss the use of free but unreplaceable pseudonyms, and describe a mechanism which implements them using standard encryption techniques.

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    Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 199820.

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    Date of creation: 23 Sep 1998
    Date of revision:
    Handle: RePEc:rut:rutres:199820
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    1. Moulin, Herve & Shenker, Scott, 1992. "Serial Cost Sharing," Econometrica, Econometric Society, vol. 60(5), pages 1009-37, September.
    2. repec:bla:restud:v:59:y:1992:i:1:p:63-80 is not listed on IDEAS
    3. Glenn Ellison, 1994. "Cooperation in the Prisoner's Dilemma with Anonymous Random Matching," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 567-588.
    4. Yannis Bakos & Erik Brynjolfsson, 1999. "Bundling Information Goods: Pricing, Profits, and Efficiency," Management Science, INFORMS, vol. 45(12), pages 1613-1630, December.
    5. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
    6. Varian, Hal R, 2000. "Buying, Sharing and Renting Information Goods," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 473-88, December.
    7. Michi Kandori, 2010. "Social Norms and Community Enforcement," Levine's Working Paper Archive 630, David K. Levine.
    8. Sabourian, Hamid, 1990. "Anonymous repeated games with a large number of players and random outcomes," Journal of Economic Theory, Elsevier, vol. 51(1), pages 92-110, June.
    9. Paul Resnick & Christopher Avery & Richard Zeckhauser, 1999. "The Market for Evaluations," American Economic Review, American Economic Association, vol. 89(3), pages 564-584, June.
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