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Identity changes and the efficiency of reputation systems

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  • Wibral, Matthias

Abstract

Reputation systems aim to induce honest behavior in online trade by providing information about past conduct of users. Online reputation, however, is not directly connected to a person, but only to the virtual identity of that person. Users can therefore shed a negative reputation by creating a new account. We study the effects of such identity changes on the efficiency of reputation systems. We compare two markets in which we exogenously vary whether sellers can erase their rating profile and start over as new sellers. Buyer trust and seller trustworthiness decrease significantly when sellers can erase their ratings. With identity changes, trust is particularly low towards new sellers since buyers cannot discriminate between truly new sellers and opportunistic sellers who changed their identity. Nevertheless, we observe positive returns on buyer investment under the reputation system with identity changes, and our evidence suggests that trustworthiness is higher than in the complete absence of a reputation system.

Suggested Citation

  • Wibral, Matthias, 2014. "Identity changes and the efficiency of reputation systems," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 465, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    • Handle: RePEc:trf:wpaper:465
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    More about this item

    Keywords

    trust; reputation; identity changes;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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