Reputation Inflation in an Online Marketplace

Average public feedback scores given to sellers have increased strongly over time in an online marketplace. Changes in marketplace composition or improved seller performance cannot fully explain this trend. We propose that two factors inflated reputations: (1) it costs more to give bad feedback than good feedback when feedback is public because buyers fear retaliation and (2) this cost is increasing in the market’s average feedback score. Together, (1) & (2) push the market towards an equilibrium where feedback is always positive, regardless of performance. To address this problem, the marketplace allowed and encouraged buyers to additionally give private feedback. This private feedback was more candid and more predictive of future worker performance. The marketplace experimentally revealed aggregate private feedback scores which influenced employers’ hiring decisions.