From: Hal <hfinney@shell.portal.com>
Date: Sun, 3 Dec 1995 05:33:05 +0800
To: cypherpunks@toad.com
Subject: Re: towards a theory of reputation
In-Reply-To: <Pine.SUN.3.91.951121223454.2539A-100000@eskimo.com>
Message-ID: <199512022116.NAA11199@jobe.shell.portal.com>
MIME-Version: 1.0
Content-Type: text/plain


Sorry to be so late picking up this thread, but I was very busy this past
week.

Wei Dai <weidai@eskimo.com> writes:
>Can you elaborate more on why the analysis is inadequate?  (I know it 
>probably isn't adequate, but why do you think so?)

"Reputation" is a fairly broad concept.  It generally refers to our
expectations of how some person will behave in various circumstances.  To
some extent, every character trait can have a reputation associated with
it.  A person can have a reputation for honesty, for efficiency, for
steadiness, for accuracy, and so on.  Even looking at it solely from the
point of view of a consumer choosing a service provider, any or all of
these traits might be important depending on the situation.  If I need
the work done right away, I will choose a supplier with a reputation for
speed.  If I want to be sure it is right and doesn't have to be redone, I
will chose one with a reputation for care and accuracy, and so on.

I don't think the notion of a graph showing utility (an overall summing
up of value to me) versus cost really captures this notion.  Such a graph
is useful and adequate for some forms of economic analysis where certain
simplifying assumptions are made, but I don't think it will work in this
case.  One of the big issues we would want to analyze is the impact of
various sets of rules and conventions for how trades occur.  The question
is how trust could be established, or how trade could occur in its
absence, given the possibility of avoiding retribution for dishonest
behavior that anonymous communication allows.  In this analysis we are
going to need more information than just utility vs price.  We will need
to separate out those various factors which go to make up the utility.

Changing the market conventions (say, by introducing escrow agencies)
will change the weightings of the various factors that make up
utility.  If I no longer have to trust the honesty of the person I am
trading with (because we have an escrow agency to help us make the
exchange) then the importance of his reputation for honesty goes down.
The result is that the "reputation" curves will change rather
dynamically and unpredictably as we consider different possible
structures in the market.  This will make the analysis of them
intractable, I would think.

As I wrote before, it makes more sense to me to focus explicitly on the
issue of trust and honesty, since those seem to be the main issues which
are going to take on more importance in an anonymous market.  Yes, they
are important in already existing markets, too, and there are plenty of
fly by night, hole in the wall companies which exist solely to do
business dishonestly and then evade retribution.  But the ease of doing
these things could increase in an anonymous market.

The other fact that makes trustworthiness more important in such a
market is the cost it applies.  One of the potential benefits of
anonymity is privacy.  To establish trust by keeping a steady pseudonym
(as was suggested earlier, a trade name or brand name performs this
function even as companies and personnel change out from under it)
means giving up a certain level of privacy.  Even if the trade name is
controlled pseudonymously, the linkability of its transactions
represents a form of exposure which can be seen as a cost.  If the only
way to be successful in business is to give up some of the privacy that
anonymity would provide by working through a consistent pseudonym, that
would be an interesting result.  Again, the issue is primarily one of
trustworthiness, as I see it.

I do think the idea of analyzing costs in terms of "throwing away your
reputation" by cheating and starting anew is an interesting approach.
The question is whether you can really quantify the value of a
reputation.  I know in business now corporations do carry on their books
something called "good will" which I believe is roughly the value of
their good name and trade marks.  However it is not normally considered
to be a major asset, I think.

Hal