Modeling Reputation and Incentives in Online Trade

Abstract

Designing an online exchange system presents a challenging undertaking, especially when that system is expected to be decentralized and its members fully autonomous. To facilitate the system architecture and protocol design, it is important to understand the behavior of the users and the impact system parameters play on their actions. In this paper we identify key attributes that drive the actions of users of trading systems, whether they are cooperative, selfish, or malicious. We then present an economic model that captures the behavior of peers in a system that employs incentive schemes and reputation systems to mitigate the effects of freeriding and misbehavior.