title: Arbitrary Inequality in Reputation Systems.
abstract: Trust is an essential condition for exchange. Large societies must substitute the trust traditionally provided through kinship and sanctions in small groups to make exchange possible. The rise of internet-supported reputation systems has been celebrated for providing trust at a global scale, enabling the massive volumes of transactions between distant strangers that are characteristic of modern human societies. Here we problematize an overlooked side-effect of reputation systems: Equally trustworthy individuals may realize highly unequal exchange volumes. We report the results of a laboratory experiment that shows emergent differentiation between ex ante equivalent individuals when information on performance in past exchanges is shared. This arbitrary inequality results from cumulative advantage in the reputation-building process: Random initial distinctions grow as parties of good repute are chosen over those lacking a reputation. We conjecture that reputation systems produce artificial concentration in a wide range of markets and leave superior but untried exchange alternatives unexploited.
authors.affiliation: Department of Sociology, Utrecht University, Padualaan 14, Utrecht, 3584CH, The Netherlands.
authors.forename: Vincenz
authors.initials: V
authors.lastname: Frey
authors.affiliation: Department of Sociology, Utrecht University, Padualaan 14, Utrecht, 3584CH, The Netherlands.|Department of Sociology, Stony Brook University, 100 Nicolls Road, Stony Brook, NY 11794, USA.|Institute for Advanced Computational Science, Stony Brook University, 100 Nicolls Road, Stony Brook, NY 11794, USA.
authors.forename: Arnout
authors.initials: A
authors.lastname: van de Rijt