Reputation Cascades

• In Event: 339 - Section on Rationality and Society Paper Session and Business Meeting. Empirical Tests of Purposive Behavior

Abstract

Reputation systems are celebrated for their effectiveness in fostering trust between strangers. This paper problematizes an overlooked side-effect: The production of reputational differentiation between equally trustworthy individuals. This endogenous inequality is caused by feedback effects in the reputation-building process. "Reputation cascades" can make entry difficult for newcomers who are deserving of good repute, while allowing established parties to perpetuate their dominance. Results from a laboratory experiment support the theory. We conclude that while global reputation systems enabled by modern technology facilitate large volumes of otherwise unviable transactions, they may also set in motion reputational snowballs that generate unfounded inequities.

Authors

• Vincenz Frey, Utrecht University

• Arnout van de Rijt, Utrecht University