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