Achieving Honest Ratings with Reputation-Based Fines in Electronic Markets

The effectiveness of online feedback mechanisms for rating the performance of providers in electronic markets is vulnerable to the submission of dishonest ratings. In this paper, we deal with how to elicit honest such ratings in a competitive electronic market where each participant can occasionally act both as provider and as client. We assume that each service provision is rated by both parties involved; only upon agreement, this rating is included in the calculation of reputation for the provider´s performance. We first study as a single-shot game the effectiveness of inducing, upon evidence of lying (i.e. disagreement of the submitted feedback), fixed fines to both transacted parties, yet different ones for the provider and the client. We prove that the submission of honest feedback can be a stable equilibrium for the whole market under certain initial system conditions. Then, we refine our game-model for repeated transactions and calculate proper different reputation-based fines for lying. These fines enable the submission of honest feedback as a stable Nash equilibrium of the repeated game and reduce the social losses due to unfair punishments. Finally, we argue that our model is appropriate for analyzing actual electronic markets, and we investigate the impact of employing our approach to the feedback schemes of such markets.