Online feedback mechanisms harness the bidirectional communication capabilities of the Internet to engineer large-scale, word-of-mouth networks. Best known so far as a technology for building trust and fostering cooperation in online marketplaces, such as eBay, these mechanisms are poised to have a much wider impact on organizations. Their growing popularity has potentially important implications for a wide range of management activities such as brand building, customer acquisition and retention, product development, and quality assurance. This paper surveys our progress in understanding the new possibilities and challenges that these mechanisms represent. It discusses some important dimensions in which Internet-based feedback mechanisms differ from traditional word-of-mouth networks and surveys the most important issues related to their design, evaluation, and use. It provides an overview of relevant work in game theory and economics on the topic of reputation. It discusses how this body of work is being extended and combined with insights from computer science, management science, sociology, and psychology to take into consideration the special properties of online environments. Finally, it identifies opportunities that this new area presents for operations research/management science (OR/MS) research.

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The Digitization of Word of Mouth: Promise and Challenges of Online Feedback Mechanisms

Researchers from across the social sciences have found consistent deviations from the predictions of the canonical model of self-interest in hundreds of experiments from around the world. This research, however, cannot determine whether the uniformity re- sults from universal patterns of human behavior or from the limited cultural variation available among the university students used in virtually all prior experimental work. To address this, we undertook a cross-cultural study of behavior in ultimatum, public goods, and dictator games in a range of small-scale societies exhibiting a wide variety of economic and cultural conditions. We found, first, that the canonical model - based on self-interest - fails in all of the societies studied. Second, our data reveal substantially more behavioral vari- ability across social groups than has been found in previous research. Third, group-level differences in economic organization and the structure of social interactions explain a substantial portion of the behavioral variation across societies: the higher the degree of market integration and the higher the payoffs to cooperation in everyday life, the greater the level of prosociality expressed in experimental games. Fourth, the available individual-level economic and demographic variables do not consistently explain game behavior, either within or across groups. Fifth, in many cases experimental play appears to reflect the common interactional patterns of everyday life.

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“Economic man” in cross-cultural perspective: Behavioral experiments in 15 small-scale societies

Probability and Measure

References ABREU, D. (1988): “On the Theory of Infinitely Repeated Games with Discounting,” Econometrica, 56(2), 383–396. ABREU, D., D. PEARCE, AND E. STACCHETTI (1990): “Toward a Theory of Discounted Repeated Games with Imperfect Monitoring,” Econometrica, 58(5), 1041–1063. BHASKAR, V., G. J. MAILATH, AND S. MORRIS (2008): “Purification in the Infinitely-Repeated Prisoners’ Dilemma,” Review of Economic Dynamics, 11(3), 515–528. (2013): “A Foundation for Markov Equilibria in Sequential Games with Finite Social Memory,” Review of Economic Studies, 80(3), 925–948. COLE, H. L., AND N. R. KOCHERLAKOTA (2005): “Finite Memory and Imperfect Monitoring,” Games and Economic Behavior, 53(1), 59–72.

Repeated Games and Reputations

Evolutionary games have considerable unrealized potential for modeling substantive economic issues. They promise richer predictions than orthodox game models but often require more extensive specifications. This paper exposits the specification of evolutionary game models and classifies the possible asymptotic behavior for one and two dimensional models.

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On economic applications of evolutionary game theory

This paper studies a game of strategic experimentation with two-armed bandits whose risky arm might yield a payoff only after some exponentially distributed random time. Because of free-riding, there is an inefficiently low level of experimentation in any equilibrium where the players use stationary Markovian strategies with posterior beliefs as the state variable. After characterizing the unique symmetric Markovian equilibrium of the game, which is in mixed strategies, we construct a variety of pure-strategy equilibria. There is no equilibrium where all players use simple cut-off strategies. Equilibria where players switch finitely often between the roles of experimenter and free-rider all lead to the same pattern of information acquisition; the efficiency of these equilibria depends on the way players share the burden of experimentation among them. In equilibria where players switch roles infinitely often, they can acquire an approximately efficient amount of information, but the rate at which it is acquired still remains inefficient; moreover, the expected payoff of an experimenter exhibits the novel feature that it rises as players become more pessimistic. Finally, over the range of beliefs where players use both arms a positive fraction of the time, the symmetric equilibrium is dominated by any asymmetric one in terms of aggregate payoffs.

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Strategic Experimentation with Exponential Bandits

https://epub.ub.uni-muenchen.de/4/1/0302_rady.pdf

We study the long-run sustainability of reputations in games with imperfect public monitoring. It is impossible to maintain a permanent reputation for playing a strategy that does not play an equilibrium of the game without uncertainty about types. Thus, a player cannot indefinitely sustain a reputation for noncredible behavior in the presence of imperfect monitoring.

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Imperfect Monitoring and Impermanent Reputations

We study the long-run sustainability of reputations in games with imperfect public monitoring. It is impossible to maintain a permanent reputation for playing a strategy that does not eventually play an equilibrium of the game without uncertainty about types. Thus, a player cannot indefinitely sustain a reputation for non-credible behavior in the presence of imperfect monitoring.

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We consider large double auctions with private values. Values need be neither symmetric nor independent. Multiple units may be owned or desired. Participation may be stochastic. We introduce a very mild notion of "a little independence." We prove that all nontrivial equilibria of auctions that satisfy this notion are asymptotically efficient. For any alpha > 0, inefficiency disappears at rate 1/n(2-alpha).

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Martin Cripps

Papers

Strategic Experimentation with Exponential Bandits

Strategic Experimentation with Exponential Bandits

Imperfect Monitoring and Impermanent Reputations

Imperfect Monitoring and Impermanent Reputations

Efficiency of large double auctions