In our directory on this site, we concentrate on rating systems based on user feedback. These differ from reputation systems such as eBay’s feedback mechanism. Rating systems are intended to aggregate feedback about certain characteristics of products or services (such as quality), while reputation systems are based on feedback about people’s past actions.

Both rating and reputation systems are designed to improve the flow of information in markets between buyers and sellers. However, they are used in slightly different situations. In terms of markets where products or services are sold, rating systems are most appropriate when buyers need information about the characteristics of something that they are going to buy, such as the quality of a product, or its performance in certain situations. In comparison, reputation systems are important when buyers need to know whether they can trust sellers to be honest or not.

To make this distinction clearer, imagine that there are two types of a product that are sold, a ‘high quality’ version and a ‘low quality’ version. Suppose that certain sellers specialise in selling low quality (e.g. discount stores) while others always sell high quality. In this case, what matters to a buyer is the quality level that a certain seller has. Furthermore, all sellers of low quality may have an incentive to lie and say that they have high quality. In this case it may be better to base feedback scores on the quality that a seller actually sold, rather than whether or not they were honest. Thus a rating system is more appropriate.

Alternatively, suppose that some sellers always have low quality, while some other sellers usually have high quality but sometimes have low quality products that they need to sell. In this case, since quality of any given seller can vary, it may not be so helpful to base feedback scores on the quality that a seller actually sold, since this will mis-identify high quality sellers who happened to have a low quality product for sale at some point. Instead, the more important characteristic is whether or not sellers honestly describe the quality that they have for sale. In this case, a reputation system based on the accuracy of product descriptions may be more appropriate than a rating system.