Trust in Online Markets - Condliffe Memorial Lecture

Berkeley's Professor Steve Tadelis is this year's Condliffe Memorial Lecturer at Canterbury's economics department.

You can register here for the lecture scheduled for 5.30, Monday 1 April, in the Undercroft. Canterbury's blurb:

The growth of online electronic commerce and markets is attributed not only to their ease of use but also to the fact that they provide reputation and feedback systems that help create trust. Recent research has exposed, however, that feedback systems are biased, suffer from “grade inflation”, and do not clearly differentiate between higher and lower quality sellers. This lecture highlights recent research that addresses these concerns and presents ways to increase the effectiveness of online reputation systems and markets.

Tadelis spent time both at Amazon and at eBay's research lab. His bio at Berkeley explains why you might want to fly out to Christchurch for this one, if you're in the industry here in NZ:

These days my research primarily revolves around e-commerce and the economics of the internet. During the 2016-2017 academic year I was on leave at Amazon, where I applied economic research tools to a variety of product and business applications, working with technologists, computer and ML scientists, and business leaders. During the 2011-2013 academic years I was on leave at eBay research labs, where I hired and led a team of research economists who focused on the economics of e-commerce, with particular attention to creating better matches of buyers and sellers, reducing market frictions by increasing trust and safety in eBay's marketplace, understanding the underlying value of different advertising and marketing strategies, and exploring the market benefits of different pricing structures. Aside from the economics of e-commerce, my main fields of interest are the economics of incentives and organizations, industrial organization, and microeconomics. Some of my past research aspired to advance our understanding of the roles played by two central institutions---firms and contractual agreements---and how these institutions facilitate the creation of value. Within this broader framework, I explored firm reputation as a valuable, tradable asset; the effects of contract design and organizational form on firm behavior with applications to outsourcing and privatization; public and private sector procurement and award mechanisms; and the determinants of trust. 

Some of his relevant papers and working papers:

• Reputation and Feedback Systems in Online Platform Markets  
• Returns to Consumer Search: Evidence from eBay  
• Two-Sided e-commerce Marketplaces and the Future of Retailing
• Buying Reputation as a Signal of Quality: Evidence from an Online Marketplace
• The Limits of Reputation in Platform Markets: An Empirical Analysis and Field Experiment

Googly quality assurance

The New York Times wrote on Decor My Eyes's strategy of bad service --> lots of complaints --> higher Google ranking --> more sales and greater profits. A bunch of blogs posted on it (me here); the article also hit Arts & Letters Daily.

Google's put in a fix:

Instead, in the last few days we developed an algorithmic solution which detects the merchant from the Times article along with hundreds of other merchants that, in our opinion, provide an extremely poor user experience. The algorithm we incorporated into our search rankings represents an initial solution to this issue, and Google users are now getting a better experience as a result.

I hope this doesn't wind up making Google liable if folks searching come to expect that top page hits have been vetted by Google.

Google gives more background on Decor My Eyes:

First off, the terrible merchant in the story wasn’t really ranking because of links from customer complaint websites. In fact, many consumer community sites such as Get Satisfaction added a simple attribute called rel=nofollow to their links. The rel=nofollow attribute is a general mechanism that allows websites to tell search engines not to give weight to specific links, and it’s perfect for the situation when you want to link to a site without endorsing it. Ironically, some of the most reputable links to Decor My Eyes came from mainstream news websites such as the New York Times and Bloomberg. The Bloomberg article was about someone suing the company behind Decor My Eyes, but the language of the article was neutral, so sentiment analysis wouldn’t have helped here either.

Whatever they've done, Decor My Eyes now has a PageRank of 1/10. You're not accidentally going to stumble upon it. I wish I'd thought to check its page rank last week.

Citations are counted, not signed

Folks in academia get ranked by citation counts. Some folks get a high citation count for being spectacularly wrong. Everybody wants to show how wrong they are. And so folks in academia welcome critique: "I don't care whether you say I'm full of crap, just get the citation right so it's counted by ISI. Promotions committees count but use absolute values."

Turns out that this can hold in the real economy too, under certain conditions. We'll often rely on reputation to solve problems in one-shot dealings. But if reputation is a high place on the front page of a Google search, it's counted, not signed. And so optimal strategy can be to have spectacularly bad customer service - service so bad that everyone wants to write posts complaining about you and linking to your homepage. It's a heck of a lot easier to draw angry reviews than happy ones. From the New York Times:

Today, when reading the dozens of comments about DecorMyEyes, it is hard to decide which one conveys the most outrage. It is easy, though, to choose the most outrageous. It was written by Mr. Russo/Bolds/Borker himself.

“Hello, My name is Stanley with DecorMyEyes.com,” the post began. “I just wanted to let you guys know that the more replies you people post, the more business and the more hits and sales I get. My goal is NEGATIVE advertisement.”

It’s all part of a sales strategy, he said. Online chatter about DecorMyEyes, even furious online chatter, pushed the site higher in Google search results, which led to greater sales. He closed with a sardonic expression of gratitude: “I never had the amount of traffic I have now since my 1st complaint. I am in heaven.”

That would sound like schoolyard taunting but for this fact: The post is two years old. Between then and now, hundreds of additional tirades have been tacked to Get Satisfaction, ComplaintsBoard.com, ConsumerAffairs.com and sites like them.

Not only has this heap of grievances failed to deter DecorMyEyes, but as Ms. Rodriguez’s all-too-cursory Google search demonstrated, the company can show up in the most coveted place on the Internet’s most powerful site.

Which means the owner of DecorMyEyes might be more than just a combustible bully with a mean streak and a potty mouth. He might also be a pioneer of a new brand of anti-salesmanship — utterly noxious retail — that is facilitated by the quirks and shortcomings of Internet commerce and that tramples long-cherished traditions of customer service, like deference and charm.

Nice? No.

Profitable?

“Very,” says Vitaly Borker, the founder and owner of DecorMyEyes, during the first of several surprisingly unguarded conversations.

“I’ve exploited this opportunity because it works. No matter where they post their negative comments, it helps my return on investment. So I decided, why not use that negativity to my advantage?”

Do read the whole thing - strongest recommendation possible.

Caveat Emptor folks. A high place in a Google search isn't an endorsement.

HT: @heathermg , via @normative