About Reputation

Necessary public goods

When we talk about public goods, it’s important to understand that public goods are what bring people together, as well as the “added value” that members of society gain from being part of it. Any real social structure is built around a common resource that these people use or create.

Even ideologically oriented organizations become true organizations when they start collecting membership fees and deciding how to spend them. Until that point, people may share a common opinion, but they do not have any shared interests. Even a married couple becomes one in order to jointly manage shared property and have pre-agreed rules for its division or for sharing expenses related to raising children. Creating a public good requires the organization of certain joint actions, which involve each member of society donating some private resources to achieve a common goal.

Any organization requires administration. From this perspective, the state can also be viewed as a provider of public resources, funded by taxpayers. It is clear that such public procurement is not optimal (Mancur Olson, “The Logic of Collective Action,” 1995), which administrators take advantage of by appropriating a portion of the public product or performing their administrative functions for uncontracted payments—bribes. As a result, society, with the advancement of information technologies, is gradually relinquishing some public goods and shifting them into the realm of personal goods. This is discussed in more detail. Text for translation: here. Текст для перевода: ..

At the same time, there are public goods for which the role of the state (or administrator) in achieving them cannot be transferred to private companies. Additionally, such goods cannot be personalized through the development of comprehensive accounting systems. An example of such a good is clean air in a city. In order for everyone to breathe clean air, all vehicles need to be equipped with catalytic converters that filter out carbon monoxide and unburned fuel residues from exhaust. In this situation, there is a strong temptation not to buy a catalytic converter. The emissions from a single car won’t make the city dirtier, and a car without a catalytic converter will demonstrate greater power or lower fuel consumption due to reduced resistance in the exhaust system. This is where the “free rider effect” comes into play. In such conditions, the role of the state is to minimize the number of free riders by regulating the car market and organizing technical inspections of vehicles.

Public goods of this kind also include the organization of mass vaccinations against infectious diseases. After all, if one specific person is not vaccinated, they won’t catch the disease from anyone else. So why should they get vaccinated and risk side effects that could lead to health issues, disability, or even death? “In an ideal system, there should exist a price that he (the patient) would have to pay to each person whose health is at risk; a price high enough for other individuals to feel that their losses are compensated; or, alternatively, there should be a price that other individuals would have to pay this person to persuade them to get vaccinated.” (Kenneth J. Arrow, “Uncertainty and the Welfare Economics of Medical Care,” American Economic Review, 1963, Vol. 53, pp. 941-973)

It is clear that when it comes to such goods, any efforts spent on assessing the damage or the risk of harm to each member of society from someone not participating in the creation of this good, and then organizing compensation payments from that person to the other members of society for the damage or risk, will, in any case, exceed the efforts of the state (or group administrator) to compel all members of society to create such a public good, even considering the imperfections of any coercive measures and the inevitable presence of a certain share of “free riders.” Even if compensatory payments, for example in the form of fines, are imposed on those who evade participation, a system of enforcement will still be required to collect these fines and redistribute the collected funds.

It is important to understand that the participation of members of society in the creation of such benefits is possible either:

• through the delegation of certain powers by society to the punitive system, which, in turn, becomes a public good funded by society (for example, the sanitary and epidemiological station), or
• through the funding of a new public good aimed at addressing the consequences of opportunism ^{The text for translation: [1].} with the mandatory, once again, delegation to a certain authority the right to manage finances (for example, payment for the services of janitors who clean the sidewalks), or
• through upbringing, culture and propaganda, which is essentially a public good funded by society (for example, various types of “social advertising”).

In other words, for a group that possesses or seeks to possess a public good, a motivating role of some administrator is necessary, who has the authority to incentivize both negatively, through violence or fines, and positively, through bonuses or rewards. Given that the group aims to minimize the costs of obtaining the public good, the option of distributing bonuses, funded by the same group members, is generally not used.

Stimulating the group is necessary to eliminate the “free rider effect.” If we look at a group the size of a nation, then “…the traditional activities of the state largely boil down to actions aimed at reducing transaction costs and overcoming the ‘free rider problem’ (Paul Heyne, “The Economic Way of Thinking” — Translated from English, Moscow, Katallaxia Publishing for the Student Library series on behalf of the Academy of Pedagogical Sciences and the Moscow Psychological and Social Institute, 1997. — 704 pages).”

Reputation versus Opportunism

When examining opportunism or, in this context, the “free rider problem” within the framework of institutional economics, the following means of social control are considered to avoid opportunism:

• Trust^[3].as a means of increasing efficiency, reducing control costs, and achieving agreements and mutual understanding in risk assessment more quickly.
• Culture serves as a framework that defines shared values, concepts, and goals, acting as a factor influencing coordination problem-solving. It is associated with the processes of establishing contact and reaching agreements: in the case of prolonged partnerships within a monoculture, there is a likelihood of increased transaction costs due to dependency, trust abuse, and opportunism, which undermine efficiency.
• Reputation, which serves as a specific form of capital, is difficult to maintain due to the possibilities of opportunism. A good reputation reduces the incentive for opportunism and thus lowers the costs of information gathering and negotiation.

At the same time, it seems logical that stable markets based on trust can only reliably exist in conditions where reputation is at least somewhat traceable. This is particularly evident in types of goods where the product and its production are one and the same. This includes almost any service, with hairdressing or medical services being a specific example.

In such markets, a key feature of sales organization (if that term is even applicable) is the establishment of client networks based on recommendations. Consumers feel extremely uncomfortable in situations where they have to trust the seller without the ability to verify the supplier’s reputation or leave a meaningful recommendation about the product for the supplier. For example, it is a reasonable rule to avoid dining in train station cafes, where product suppliers are completely unconcerned about their reputation, the recommendations of “one-time” customers, and do not expect repeat visits from clients.

Similarly, all travel guides recommend eating only at roadside cafes where truck drivers, who are frequent customers and members of a recommendation network, dine. In such establishments, it is extremely disadvantageous for the supplier to offer low-quality products, taking advantage of information asymmetry and displaying opportunism. Thus, in the absence of reputational pressure on the supplier, it is more appropriate to speak not of consumer trust, but rather of supplier monopoly or the conditions of limited rationality in which the consumer finds themselves, unable to consider all possible alternatives to satisfy their demand and compare them based on rational criteria. One should also not rely on culture as a guaranteed tool to eliminate opportunism. Despite cultural achievements In our society, it is important to understand that culture is not a universal tool for eliminating opportunism.

In an apartment building, even if almost all residents have good manners, it only takes one uncivilized person for the elevator to smell like urine until the next cleaning.

References to “level of culture” or “consciousness” are generally good indicators of the utopian nature of certain social structures. It is impossible to envision a situation where all members of society possess a high level of culture, as culture itself is a public good produced by parents for the benefit of the entire community. If parents act opportunistically and fail to raise their children, neglecting to instill in them culture and norms of behavior, they gain an advantage over other parents who invest their resources in such activities.

Utopian methods of economic organization are designed with a humanistic focus and are generally non-market based. They can be either democratic or hierarchical, but in any case, they require a deep commitment to collective goals and adherence to subordination. Throughout the history of social and economic organization, there have been numerous attempts to create such structures; however, it is utopian societies that suffer the most from opportunism. (Manuet F.E. and Manuet F.P. Utopian Thought in the Western World. Cambridge (MA): Harvard University Press, 1979.)

It is interesting to note that the only positive incentive for an individual to be part of a culture or to demonstrate “high culture” is the enhancement of that individual’s reputation and the level of trust in them. In terms of trust, this means that, all else being equal, other individuals are more likely to engage in a transaction with a “cultured” person, as they can save on transaction costs when choosing a supplier.

From a reputational standpoint, it means, among other things, that an individual can conserve their own resources, as those interacting with them already expect certain behavior based on their culture or reputation.

To put it briefly, few would engage in a fight with a world boxing champion, which allows the champion to avoid fighting altogether and simply maintain a reputation. (David M. Kreps, Robert Wilson “Reputation and Imperfect Information” Journal of Economic Theory. 1982. Vol. 27. P. 253–279) Thus, in one way or another, all possible methods of countering opportunism come down to managing reputation. However, we encounter three significant characteristics here:

• the density of the social network in which reputation spreads, that is, the number of social connections among players
• the speed of information dissemination in this network and its incorruptibility
• the engagement of participants in the social network, meaning the duration of relationships over time and the number of these relationships

It has been shown (Vincent Buskens, “Social Networks and the Effect of Reputation on Cooperation”, Department of Sociology Utrecht University, Heidelberg-laan 1, 3584 CS Utrecht, the Netherlands. Email: buskens@fsw.ruu.nl) that all three factors positively influence the role of reputation. This is, of course, understandable. If we talk about the behavior of a person who is well-known to everyone around, meaning we have a high density of the network, and information spreads instantly within this network, plus the person in question frequently interacts with other members of the network, then news about, say, him shaving his head will spread rapidly.

At the same time, real social networks are not what they seem for a number of reasons. The Dunbar number also plays a role here. ^[4]. , limiting the number of connections for each player. Additionally, the speed of information transfer between people is not instantaneous. People themselves are not perfect repositories or transmitters of information and may simply forget, omit, or distort certain details about others. Moreover, individuals’ engagement with their own social network is far from perfect, and during a certain period, while reputational information is still relevant, a person does not interact with their entire social network.

In such conditions, the reputational mechanism serves as an excellent antidote to opportunism in small, mutually transparent groups, where it is reasonable to expect that the first player will enter into the next transaction with the third player only after the third player is already informed about the results of the first player’s previous transaction with the second player.

The influence of the speed and quality of information dissemination through social networks on reputation is well illustrated by Jared Diamond in “Guns, Germs, and Steel: The Fates of Human Societies,” where he describes the capture of Atahualpa by Pizarro’s forces. At the time of their encounter, Pizarro had information about the reputation (expected behavior) of the indigenous people, while Atahualpa, in turn, lacked information about the reputation of the Spaniards. Given that both the Spaniards and the indigenous people repeatedly acted according to the same script, where the indigenous people lost and the Spaniards won—primarily due to the differing levels of awareness each side had about the other’s reputation—it can be concluded that the speed and quality of information exchange within a social group are crucial for its mobilization and for countering competing groups.

“Why did Atahualpa fall into the trap? In retrospect, it seems incredible that Atahualpa came to Cajamarca on his own, only to fall into a rather simple trap set by Pizarro. The Spaniards who captured him were just as astonished by their luck. The main underlying condition for this event was the limited use of writing.” The direct explanation is that Atahualpa had very little information about the Spaniards, their military potential, and their intentions. He received this scant information orally, mainly from his envoy, who spent two days with Pizarro’s men as they moved from the coast inland. Since the envoy encountered the Spanish contingent in a state of maximum disorganization, Atahualpa was informed that the Spaniards were poor warriors and that they could easily be subdued by a force of 200 Indians. It is clear that after this, it never occurred to Atahualpa that the Spaniards were formidable opponents capable of attacking without provocation. In the New World, the ability to write was a privilege of the few — the upper echelons of several societies located in what is now Mexico and its neighboring regions, significantly north of the Inca Empire. Although the conquest of Panama, situated about 600 miles from its northern border, began as early as 1510, the Incas apparently had no knowledge of the existence of the Spaniards until Pizarro first landed on the Peruvian coast in 1527. Consequently, Atahualpa was completely unaware that the Spaniards had already subdued the most powerful and densely populated societies of Central America. We, modern people, are struck by Atahualpa’s actions that led him straight into the hands of the Spaniards, but his subsequent behavior as a prisoner is no less astonishing. He offered a famous, extravagant ransom for himself in the naive belief that once he paid it, the Spaniards would release him and leave. He was unable to understand that Pizarro’s expedition was not a one-time raid, but merely the first strike of a formidable force intent on continuous conquest. Atahualpa was far from the only one to make such a fatal miscalculation. After his capture, Hernando Pizarro, Francisco’s brother, deceitfully tricked Chalcochima, Atahualpa’s top general who was leading a large army, into surrendering to the Spaniards. Chalcochima’s voluntary surrender marked a turning point in the collapse of Inca resistance—an event almost as significant as the capture of Atahualpa himself. The Aztec emperor Montezuma made an even more egregious error by mistaking Cortés for a returning god and allowing him and his armed followers into the Aztec capital of Tenochtitlan. Following this, Cortés first captured Montezuma and then conquered Tenochtitlan and the entire Aztec Empire. If we look at it from a practical perspective, the miscalculations of Atahualpa, Chalchiuhtlicue, Montezuma, and countless other leaders of Indigenous Americans, who mistakenly trusted the Europeans, can be explained by the simple fact that none of their American contemporaries had been to the Old World, and naturally, none of them had specific information about the Spaniards. However, even considering this circumstance, it is hard to avoid the conclusion that Atahualpa would likely have acted with greater caution if it weren’t for the limited understanding of human behavior in his culture. After all, when Pizarro arrived in Cajamarca, he also lacked information about the Incas, apart from what he gathered from the interrogations of the emperor’s subjects he encountered in 1527 and 1531. Nevertheless, it is important to remember that Pizarro, despite his own illiteracy, belonged to a written tradition. Thanks to books, the Spaniards were aware of many contemporary civilizations far from Europe, as well as several millennia of their own history. For instance, when Pizarro set an ambush for Atahualpa, he did not hide the fact that he was merely imitating Cortés’s successful strategy. In short, writing made the Spaniards heirs to a colossal body of knowledge about human behavior and the history of human societies. Atahualpa, on the other hand, not only had no understanding of the Spaniards themselves and no personal experience of encounters with foreign conquerors, but he had never even heard (or read) about similar dangers that anyone, anywhere, at any time had faced in previous history. It was this chasm that separated the experiences of Pizarro and Atahualpa that allowed the former to set his trap and the latter to fall into it.

Experiments in computer networks

The speed and quantity of interactions that naturally exist in real social networks turn out to be less strict when we look at virtual social networks. It is clear that virtual communities, in the absence of a public good created or administered by them, are nothing more than a means of entertainment. However, it is worth noting that a message written by one user of a computer social network to another can be instantly accessible to all the social connections that the message’s author has.

There’s no need to keep repeating the same news over and over. It’s enough to convey the idea once, and it becomes immediately accessible to everyone. Those who receive the news can also pass it on without any distortions, simply by pressing a button. It’s also worth noting that the number of “friends” in a virtual social network can far exceed Dunbar’s number, as the virtual social network acts as a sort of prosthetic or upgrade to a person’s social capabilities.

Thus, the speed, quality, and reach of interactions achievable in virtual networks theoretically allow for the use of reputation as a tool against opportunism, even in large latent groups. Interestingly, there are communities on the Internet that create some form of public good. This could be a collective news resource or a collaborative blog that participants find interesting to read, not just to contribute as writers. Examples include dirty.ru, habrahabr.ru, digg.com, photosight.ru, and leprosorium.ru. These communities use reputation as a tool to combat opportunism, which, in this case, manifests as attempts to exploit the collective blog for spam, advertising, self-promotion, or intrusive self-assertion. The idea of tracking the reputation of blog participants arose from the same opportunism, but this time from the administrators of the resource. In their desire to reduce their own moderation costs, they dream of self-moderating communities. As a result, they introduced rating systems for both the publications and their authors. This led to the emergence of terms like “karma” or digital reputation, which users assign to one another.

Reputation scoring systems and their use for community self-organization are still not fully perfected, but one thing is clear: the trial-and-error method employed by resource administrators will eventually lead to some acceptable universal solution. An example of the imperfection of reputation assessments is their binary nature. With “likes,” we can only get an evaluation of “good” or “bad.” However, there is no explanation for why it is “bad” or “good” anywhere.

At the same time, reputation is not just “good” or “bad”; it reflects expectations about a person’s behavior or what one can expect from interactions with that person. Thus, reputation can appear as a list of anticipated outcomes of interactions, complete with a quantitative assessment within that list. For example: “knowledgeable philatelist” (+345), “internet troll” (+467), “expert on Ukrainian-Russian relations” (+1456). In this case, “negative karma” simply doesn’t make sense. If it becomes necessary, someone might give another rating like “does not keep promises,” and others can choose to join in or not.

Transitions to “multidimensional karma” are already being observed on some platforms. There are separate evaluations of a person as such, their role as a post and comment author, their activity on the blog, the assertive popularity of their entries, and so on.

Due to the imperfections in the digital reputation mechanism, collective blogs still require moderators for their normal functioning. These moderators can either be chosen by the blog participants themselves, appointed by administrators, granted automatically based on karma levels, or formed from mobilized groups of users who take on “sanitary” or even “policing” functions for the resource. They use methods available to regular users, which, when applied by a coordinated group, become a tool for moderation.

If we talk about the functioning of peer-to-peer networks that are inherently devoid of administrators, where the exchange of information or informational goods takes place, then in such networks, a digital, traceable reputation is practically the only tool that creates an atmosphere of trust within the network and counters attempts to spread low-quality material, computer viruses, or spam. (Trust and Reputation Model in Peer-to-Peer Networks Yao Wang, Julita Vassileva University of Saskatchewan, Computer Science Department, Saskatoon, SK, S7N 5A9, Canada)

Conclusions

In this article, we followed the following chain of thoughts:

• There is a whole set of public goods that are irrational or impossible to privatize, even considering the advancements in information technology that allow for a comprehensive accounting of participants’ contributions and the corresponding distribution of benefits in other cases.
• The role of the state is to administer public goods and to reduce the manifestation of opportunism among citizens through the authority granted to the state to enforce compliance.
• There is at least one more way to mobilize groups to create public goods and counteract opportunism — the reputation of group members.
• In large groups, reputation as a mechanism to protect against opportunistic behavior is not always effective due to the limitations on the speed of reputation dissemination. Player C may not learn that Player A was dishonest in a deal with Player B by the time they make a decision about entering into a deal with Player A.
• The existing mechanisms of interaction in computer social networks not only remove restrictions on the use of reputation but also allow for the storage and tracking of digitized reputation karma for each user. This enables participants in virtual communities to use reputation as a form of capital.

Thus, we can expect the development of information technologies to the extent that they will allow for tracking digital reputation not only in virtual communities that lack public goods but also in real communities.

The latent demand among members of society for information about the reputation of others, as well as for building and further leveraging their own reputation, can serve as a prerequisite for the development of information technologies. This demand aims to reduce both their own costs associated with undesirable transactions with other members of society and the costs that others incur in relation to them, making a person with a good reputation more attractive for transactions that they desire.

The mechanisms for tracking individuals’ reputations and instantly informing other members of society about the outcomes of various transactions or the behavior of group participants would allow for a rejection of the state apparatus and its system of coercion as the sole means of compensating for opportunistic behavior.

Such mechanisms, of course, must assume the presence of certain… systems of total accounting and observations of individual behavior with the organization of their mutual accountability and transparency (Brin, David (December, 1996). “The Transparent Society”. Wired (4.12)). Despite the somewhat fantastical nature of the assumption about the possibility of organizing a “transparent society,” we will focus on the thesis that if such a society could be established, the mechanisms for tracking the reputation of its members could successfully compete with state services in compelling members of society to interact.

On the other hand, it can be argued that for the sake of self-preservation, the state and, consequently, the conformist society, by their very nature, must resist to the point of disgust any ideas aimed at mutual transparency and insist solely on enhancing one-sided transparency, where the state knows everything about the people, while the citizen knows nothing (or, at least, not everything) about the state.

rp 20:04, November 23, 2011 (UTC)

1. Opportunism is the pursuit of one’s own interests, often through deceitful means, including obvious forms of deception such as lying, stealing, and fraud, but hardly limited to these. Much more often, opportunism implies subtler forms of deception, which can take both active and passive forms, manifesting ex ante and ex post. (Oliver E. Williamson. Behavioral Assumptions. In: O.E. Williamson. The Economic Institutions of Capitalism. Firms, Markets, Relational Contracting. N.Y.: The Free Press, 1985, p.44–52)
2. Positive reinforcement is indeed present both in commercial organizations like joint-stock companies, which share profits from jointly operated enterprises, and in non-profit organizations such as trade unions. In trade unions, membership and active participation are encouraged through additional benefits, such as job security or access to social programs: kindergartens for union members’ children, insurance, and sanatorium treatment.
3. On the role of trust in society and the economy, see Fukuyama, F. Trust: The Social Virtues and the Creation of Prosperity. Translated from English / F. Fukuyama. — Moscow: ACT Publishing House; Ermak Publishing House, 2004. — 730, [6] pages. — (Philosophy). (ACT Publishing House) ISBN 5-9577-1416-X (Ermak Publishing House)
4. Dunbar’s number is a limit on the number of stable social relationships that a person can maintain. Maintaining such relationships requires knowledge of an individual’s distinctive traits, character, and social status, which demands significant cognitive abilities. It ranges from 100 to 230, with 150 being the most commonly cited figure. The term is named after the English anthropologist Robin Dunbar, who proposed this number.
5. Let’s call everything that falls under copyright laws or the concepts of GNU and Open Source.
6. There is one distinguishing feature of the state that does not disappear or become less obvious even upon close examination. The state possesses a universally recognized and exclusive right to coerce the adult population. This right is considered widely accepted, but not acknowledged by everyone; it is challenged by radical anarchists, as well as by those who generally agree with the necessity of the state but reject the legitimacy of the specific government in which they live. This right is exclusive because, as the saying goes, “people are not free to make the law with their own hands”; if coercion is required, one must turn to representatives of state authority (police, judges, legislators). The right to coerce the adult population belongs solely to the state, while the right to coerce their children in certain situations is generally recognized as belonging to parents. What is meant by coercion? We have already “secretly” provided a definition of coercion, raising it as a question for discussion at the end of Chapter 11. To coerce means to incline people towards joint activity by limiting their freedom of choice. An alternative way to encourage joint activity is persuasion. To persuade means to incline people towards joint activity by expanding their freedom of choice. In some cases, it may be difficult to unambiguously categorize certain actions as coercion or persuasion. This often happens in situations involving actual or presumed deception; that is, when we disagree about how people truly perceived their choices when they were being inclined towards joint activity. Or we may have different opinions about what rights should be granted to people. But in general, this definition helps to understand whether coercion was applied in attempts to influence people’s behavior. The right to limit choices, restrict personal freedom, and take away some of people’s rights in order to achieve joint activity is recognized only for the state. Coercion has a bad reputation because most of us believe (at least, it seems to us) that people should generally be allowed to do what they want. Moreover, coercion implies the existence of power, and many of us automatically react negatively to any claims of authority. However, traffic rules, which tell us to drive on the right side and stop at red lights, both coerce us and… expand our freedom. Our freedom is expanded because other people are also subjected to coercion. And we all get to where we need to go faster and more safely because we comply with the “coercion” of traffic rules. This is how the defense of the state and its right to use coercion is traditionally constructed: we can all achieve greater freedom (a wider choice) if we reconcile ourselves to the limitations of our freedom (and our choices). (Paul Heyne. The Economic Way of Thinking, Chapter 14. Markets and the State)