Inflated Reputations: Uncertainty, Leniency, and Moral Wiggle Room in Trader Feedback Systems

The reputation information provided by market feedback systems tends to be compressed in the sense that reliable and unreliable sellers have similar feedback scores. The experiment presented here features a market in which what a buyer receives is a noisy signal of what was actually sent. We focus on the influence the noise has on endogenously given feedback. The attributional uncertainty creates room for leniency in feedback giving. We find that buyer leniency reduces the informativeness of the feedback system and, in combination with uncertainty, diminishes seller trustworthiness. With a noisy signal, buyers pay about the same prices but get significantly less.

This paper was accepted by Uri Gneezy, behavioral economics.