Is the reputation economy maturing into real economic value?

Rachel Botsman has written an excellent overview for the September issue of Wired UK. It’s worth reading in full.

The P2P Foundation wiki keeps extensive documentation on the emerging field of P2P Metrics and Accounting, here.

Excerpted from Rachel Botsman:

“”Welcome to the reputation economy, where your online history becomes more powerful than your credit history.

The value of reputation is not a new concept to the online world: think star ratings on Amazon, PowerSellers on eBay or reputation levels on games such as World of Warcraft. The difference today is our ability to capture data from across an array of digital services. With every trade we make, comment we leave, person we “friend”, spammer we flag or badge we earn, we leave a trail of how well we can or can’t be trusted.

An aggregated online reputation having a real-world value holds enormous potential for sectors where trust is fractured: banking; e-commerce, where value is exponentially increased by knowing who someone really is; peer-to-peer marketplaces, where a high degree of trust is required between strangers; and where a traditional approach based on disjointed information sources is currently inefficient, such as recruiting.”

“Social scientists have long been trying to quantify the value of reputation. In 2008, Norihiro Sadato, a researcher at the National Institute for Physiological Sciences in Aichi, Japan, along with a team of colleagues, wanted to determine whether we think about reputation and money in the same way, by mapping the neural response to different rewards. “Although we all intuitively know that a good reputation makes us feel good, the idea that good reputation is a reward has long been just an assumption in social sciences,” Sadato says. “There has been no scientific proof.”

In order to prove his hypothesis, Sadato devised an experiment: participants were told they were playing a simple gambling game, in which one of three cards would result in a cash payout. Using functional magnetic resonance imaging, the researchers monitored brain activity triggered when the subjects received a monetary reward. When the subjects returned on the second day, they were each shown a picture of their face, with a one-word descriptor underneath that a panel of strangers had supposedly written about them. Some of the descriptions were positive, such as “trustworthy”, others neutral, such as “patient”, and others negative. When participants heard they had a positive reputation, a part of the brain, the striatum, lit up.

The same part would also light up if they had won money. As Sadato puts it: “The implication of our study is that different types of reward are coded by the same currency system.” In other words, our brains neurologically compute personal reputation to be as valuable as money.

Personal reputation has been a means of making socioeconomic decisions for thousands of years. The difference today is that network technologies are digitally enabling the trust we used to experience face-to-face — meaning that interactions and exchanges are taking place between total strangers.

Trust and reputation become acutely important in peer-to-peer marketplaces such as WhipCar and Airbnb, where members are taking a risk renting out their cars or their homes. The difference between these community-driven marketplaces and e-commerce sites is that they are connecting real people with real names in the offline world. When you are trading peer-to-peer, you can’t count on traditional credit scores. A different measurement is needed. Reputation fills this gap because it’s the ultimate output of how much a community trusts you.

“Reputation allows you to bring over some of the history of who you are as a person, whether it’s in the digital or the real world,” says Brian Chesky, cofounder and CEO of Airbnb, the peer-to-peer marketplace that matches people with space to rent with those looking for accommodation. “What has surprised me the most about reputation is that the need for it actually goes down as the marketplace matures.”

In other words, a host’s or a guest’s reputation gets users comfortable with trusting the idea (staying in or renting the homes of complete strangers), trusting the system (Airbnb) and trusting the recipient. “By the time a host has their 20th guest on Airbnb, they start blindly accepting people. They don’t need to talk on the phone or need lots of information,” he explains. “You start trusting people. So really what we are doing is not just renting out spaces but helping to change the way people trust humanity.”

Chesky is aware of the value of the data users are building on Airbnb. “The platforms that will become the centrepiece of online reputation are the ones that create some kind of meaningful relationships, and carry the data on defining who you really are as a person,” says the 30-year-old. He believes, however, that Airbnb has a trust currency that is “super interesting for others because the transactions are in person and not just online. We capture data about people’s real-world behaviours that could not be captured on any other website.”

But this wealth of data raises an important question — who owns our reputation? Shouldn’t our hard-earned online status be portable? If you’re a SuperHost on Airbnb, shouldn’t you be able to use that reputation to, say, get a loan, or start selling on Etsy? “I know we are creating a really important currency that could be useful outside of Airbnb,” Chesky says.”

Here is an example of real economic effects of reputation scores, i.e. how Stack Overflow experts use it to obtain employment:

Rachel Botsman:

‘Stack Overflow reports more than 24 million unique visitors a month and around 5,500 questions are submitted to the site every day.

Voting on and editing questions are just two ways in which users can earn reputation points on Stack Overflow. “Reputation is earned by convincing your peers that you know what you are talking about,” Spolsky says. “The reason why the site is 100 per cent spam-free and that around 80 per cent of all questions get answered is entirely a function of the community. The way we do that is as you earn more reputation points, you get more powers on the site.”

Shortly after the site launched, Atwood and Spolsky heard that programmers were putting their Stack Overflow reputation scores on their CVs, and headhunters were searching the platform for developers with specific skills. “A CV tells you what schools they went to, what companies they worked for and how well they did on a standardised test when they were teenagers,” Spolsky explains. “But if you read the writings of someone on Stack Overflow, you immediately know if they are a skilled programmer or not.” In February 2011, Stack Overflow launched Careers 2.0, an invitation-only job board where companies can find skilled programmers.

Stack Overflow demonstrates how a person’s reputation score created in one community is starting to have value beyond the environments where it was built. By answering questions in an expert forum, you create more opportunities to find a better job.”

1 Comment Is the reputation economy maturing into real economic value?

  1. AvatarLevel 70 Mage - Warsong Gulch

    I believe what you published was actually very logical.
    However, consider this, suppose you were to write
    a awesome headline? I am not suggesting your content is not solid, but
    suppose you added a post title that grabbed folk’s attention? I mean P2P Foundation ? Blog Archive ? Is the reputation economy maturing into real economic value? is kinda plain. You should peek at Yahoo’s
    front page and note how they create article titles to grab viewers to click.
    You might try adding a video or a pic or two to grab people excited about what you’ve got to say. Just my opinion, it might make your posts a little bit more interesting.

Leave A Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.