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. There is now a substantial amount of literature on what these mechanisms do well and not so well. Conspicuously absent is a theoretical framework to guide thinking on improving these systems. Here we construct a prototype market, stylized and conceptual in nature, but also suitable for laboratory testing. We use the prototype to examine competing approaches to eliciting feedback from traders. Using entropy to benchmark informativeness, we show that the informativeness of feedback elicitation approaches depends on the ability to solve a coordination problem such that traders use a common mapping to turn experiences into ratings. In theory, different approaches can be about equally informative although the map to coordinate on is more ambiguous in some cases. We then test the approaches in the laboratory. The resulting data find that the most informative feedback is associated with the elicitation methods where the solution to the coordination problem is least ambiguous. This paper was accepted by Yan Chen, behavioral economics and decision analysis. Funding: Financial support from the Deutsche Forschungsgemeinschaft (German Research Foundation) through the Research Unit “Design & Behavior” [FOR 1371] is gratefully acknowledged. The authors thank the Dutch national e-infrastructure for support of the SURF Cooperative. Supplemental Material: The data files and online appendices are available at https://doi.org/10.1287/mnsc.2023.4694 .