Automated reputation and trust systems play a significant role in the emerging networked society. We will discuss existing reputation systems, focusing on their vulnerability to gaming. We will point out the role of transaction costs in making eBay's reputation system
(relatively) robust to manipulation. We will then describe a model of networked trust that functions by exchange of IOUs among nodes.
Informally, every node acts as a bank and prints its own currency, which is then used to purchase services within the network. Such "trust networks" are robust to infiltration, since any node only accepts currency printed by other nodes that it directly trusts. We will analyze the liquidity of this model, i.e., the number of transactions that such a network can support. We will show that in many interesting cases, the liquidity of these trust networks is comparable to a system where currency is issued by a single centralized bank.
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