Experimental & Behavioural Economics Seminar - Professor Gary Bolton (UT Dallas)

Title: Rate this transaction: Coordinating mappings in market feedback systems

Abstract: Reputation feedback systems assign feedback scores to traders with the aim of separating them according to reliability. The objective is enforcing trustworthiness, and thereby creating trust among the traders.  Little is known about the proper design of these systems. We show how the informativeness of feedback scores depends on the ability of the system to solve a coordination problem such that traders use a common mapping to turn experience into ratings.  The analysis provides guidance for designing the feedback elicitation mechanisms. To test efficacy, we set up a prototype market in which buyers rate seller reliability and enables a sharp comparison of the informativeness (entropy) of alternative feedback elicitation mechanisms.  Some commonly employed elicitation mechanisms score relatively low in informativeness.  While no mechanism reaches the theoretical optimum, the one that works best tailor the elicitation question to the specific trader reliability problem and set the rating scale to avoid the coordination problem. The results suggest that feedback elicitation should be designed to promote cognitive fluency, providing cues that naturally align with the feedback judgements that are most informative to other traders.