Tradable Reputation and Online Economic Efficiency: A Field Experiment in Second Life

The online world has developed from a source of information to a complex economic and social environment. However, many online environments fail to function efficiently due to the lack of reliable reputation and anonymity of users. We propose a tradable reputation mechanism and conduct a virtual field experiment, using Second Life as an experimental platform, to investigate the role of reputation trading, based on our game theory analysis of the economic influence of tradable reputation. We introduce an avatar market that allows users to buy and sell avatars in terms of the reputation. Our main theoretical results show that reliable reputation is induced in a separating equilibrium where users are separated based on their ability in fulfilling tasks or transactions. We generate five hypotheses to test in the field experiment. We also describe a computer system that realizes the proposed mechanism as a basis for the field experiment.