Effect of Reputation Mechanisms and Ratings Biases on Traders’ Behavior in Online Marketplaces

Abstract

Rating mechanisms are becoming an essential tool for online shoppers. There have been many reputation mechanisms proposed in the literature that try to mitigate the sometimes adverse effects of strategic behavior of the traders to alter their true reputation scores. At the same time, several studies have shown the presence of bias (often unintentional) in product ratings and their harmful effect on buyers and product sales. To date, there has not been any work done that studies the effect of reputation mechanisms and ratings biases on the behavior of buyers and sellers in an online marketplace. In this article, we use the concept of replicator dynamics to study the evolution of different types of sellers and buyers who use three different reputation mechanisms. We also study the evolution of different types of sellers in the presence of four types of ratings biases. Our results indicate that, over time, buyers gravitate toward using the adaptive model and, in most scenarios, strategic and dishonest sellers are replaced by honest sellers.