FTC report: Peer reviews essential to building trust in sharing economy
According to a new report published by the Federal Trade Commission in November, peer to peer ratings and reviews are not only essential in making users on sharing platforms feel safe, but it also reduces the need for safety and regulatory measures.
The report dives in to issues facing platforms, participants and regulators with ‘trust mechanisms’ as one of four main topics.
The 89 pages upshot is based on numerous interviews and research papers, so for the sake of easy deciphering here’s a sample of the most important pointers.
10 findings on ‘trust mechanisms’
- Bi-directional trust needs to be established much more than in traditional marketplaces and e-commerce sites
- A user relies both on the reputation of the platform itself, and on the reputation of the transaction partner ie. the peer user
- Law enforcement have very little leverage over individual users, why it’s essential for platforms to build in trust mechanisms
- The main category for building trust on a platform falls into building a reputation rating system — either native or by 3rd parties
- The secondary category is direct intervention ie. who is allowed to transact on the platform, which can be limited by conducting background checks
- Reputation rating systems are critical for sharing economy platforms and otherwise threatens the existence of those platforms
- Aggregating a user’s reputation across several platforms could generate strong benefits
- Users will pay a premium for goods or services if the individual provider has a higher rating and the provider is more likely to conduct a sale
- Ratings and reviews can screen bad actors and deter the worst type of fraudulent behaviour
- There is a strong correlation between leveraging a reputation rating system and the growth in activity for a platform
Reputation rating systems are imperfect
The report also discusses that reputation rating systems are imperfect and evidence exists on reviews being manipulated and biased upwards. In addition, it can exclude new entrants, the so-called ‘cold start’ issue or even create lock-in for users who’ve been active for a while.
It’s also mentioned how platforms might try to inflate users’ reputation and thus creates uncertainty around the accuracy of ratings. In conclusion, however, the reputation rating system creates more value than the alternative of having no historic data.
Also, read our Content & Communications Coordinator, Oana’s summary on this via the deemly blog.