Pre-state commercial law judges made reputation systems work where direct knowledge failed

Evidence

In the model we develop below, this second problem has multiple aspects. First, traders must be motivated to execute sanctions against Cheaters when that is a personally costly activity. Second, traders must be motivated to keep well enough informed to know when sanctions are required, even though information gathering activities may be personally costly and difficult to monitor. In effect, one who keeps informed about who should be punished for past transgressions is supplying a public good; he deters the traders from cheating against others. Moreover, in our model, no other trader except his current partner will ever know if a trader does not check his partner’s past history, so the trader could avoid supplying the public good without facing any sanction from future traders. Third, traders who are cheated must be motivated to document the episode, even though providing documentation may be personally costly. — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 78 (#complicates, via linked claim)

Categorization

• XREF: connects to: Reputation matters but cannot substitute for direct experiential testing; Bilateral reputation systems fail because information and sanctioning are costly public goods — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 78; A trustworthy reputation can be exploited because it is imperfectly known (+7 more)

Related

• Bilateral reputation systems fail because information and sanctioning are costly public goods (similarity 0.85)
• Pre-state trading communities sustained honesty through reputation systems backed by private judges. (similarity 0.83)
• Reputation systems fail because monitoring and sanctioning are costly public goods. (similarity 0.82)
• Information about partners’ past behavior is essential for punishing cheaters. (similarity 0.78)

Broader Connections

• Reputation matters but cannot substitute for direct experiential testing #qualifies (0.85)
• Bilateral reputation systems fail because information and sanctioning are costly public goods #complicates (0.80) — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 78
• A trustworthy reputation can be exploited because it is imperfectly known #complicates (0.78)
• When evidence is absent, reputation claims are settled only by stronger reputation claims #qualifies (0.75)