Reputation mechanisms provide a promising alternative to the traditional security methods for preventing malicious behavior in online transactions. However, obtaining correct reputation information is not trivial. In the absence of objective authorities (or trusted third parties) which can oversee every transaction, mechanism designers have to ensure that it is rational for the participating parties to report the truth. In this paper we describe a complete reputation mechanism for the online hotel booking industry that is efficient (i.e. the equilibrium behavior is cooperative) and incentive compatible. Our mechanism discovers the true outcome of an interaction by analyzing the two reports coming from the agents involved in the interaction. Based on side payments, such a mechanism makes it profitable for long-run agents to commit to always report the truth.
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