The Dark Side of Reputation

In 2017, the English journalist Oobah Butler wanted to test his theory about “society’s willingness to believe absolute bullshit.”1Oobah Butler, I Made My Shed the Top-Rated Restaurant on TripAdvisor, Vice (Dec. 6, 2017, 5:20 PM), https://‌www.vice.com/‌en_us/‌article/‌434gqw/‌i-made-my-shed-the-top-rated-restaurant-on-tripadvisor [https://‌perma.cc/‌CQQ5-HLFH].. He had previously had a job writing false TripAdvisor reviews: “Restaurant owners would pay me $13, and I’d write a positive review of their place, despite never eating there.”2Id. Using this experience, he set out to create a website for an entirely fictitious restaurant and, through the manipulation of reputation built on TripAdvisor posts, to make it the highest rated restaurant in London. The ostensible site of the restaurant was the shed in which Butler lived in the non-descript London suburb of Dulwich.3Id.

Needless to say, Butler succeeded. He posted fake pictures of meals; enlisted his friends to write glowing reviews; and within a few weeks he was inundated with phone calls and emails requesting bookings for months in advance. In May 2017, the restaurant debuted at the bottom of the heap, ranked 18,149. By November 1st, “The Shed at Dulwich” was ranked number one with “89,000 views in search results” in one day.4Id. Eventually, Butler decided to end the charade and see what would happen if he booked actual diners. He served them microwaved frozen dinners at “a hastily-assembled collection of chairs outside of my shed, and they left thinking it really could be the best restaurant in London—just on the basis of a TripAdvisor rating.”5Id.

Reputation is the foundation of theories of private ordering. These theories contend that commercial actors will act honestly because if they do not, they will get a bad reputation and others will not want to do business with them in the future.6See, e.g., Douglas W. Allen & Dean Lueck, The “Back Forty” on a Handshake: Specific Assets, Reputation, and the Structure of Farmland Contracts, 8 J.L. Econ. & Org. 366, 369 (1992) (“Punishment to cheaters, through lost future trade, encourages cooperation between the contract parties”); W. Bentley MacLeod, Reputations, Relationships, and Contract Enforcement, 45 J. Econ. Literature 595, 609 (2007) (“individuals . . . choose to be trustworthy because of the effect upon their reputation and the future rents they would receive from keeping their reputation intact”); Barak D. Richman, Firms, Courts, and Reputation Mechanisms: Towards a Positive Theory of Private Ordering, 104 Colum. L. Rev. 2328, 2335 (2004) (“if a party cheats any other party, that party’s misconduct becomes known throughout the community; and no one will transact with any individual known to have cheated in the past. Thus, . . . the prospect of future beneficial transactions induces cooperative behavior.”). But economists and scholars of networks increasingly realize that reputation has its defects.7See infra Part I. Mixed in with trustworthy and useful reputation information on which commerce of all sorts relies is inaccurate, distorted, misguided, or outright fraudulent information. If TripAdvisor ranks The Shed at Dulwich as the best restaurant in London, people are willing to believe that it is.8Jonathan Silberstein-Loeb, Reputation or: How I Learned to Stop Worrying and Love the Market, in Reputation Capital: Building and Maintaining Trust in the 21st Century 23, 25 (Joachim Klewes & Robert Wreschniok eds., 2009) (“People believe in reputation, true or false, presumably because the costs of corroboration are too high, yet reputation is often forged of untrustworthy stuff.”). And such inaccurate information threatens the effectiveness and efficiency of the reputation-based governance of the market.9Eric Goldman, Regulating Reputation, in The Reputation Society: How Online Opinions Are Reshaping the Offline World 51 (Hassan Masum & Mark Tovey eds., 2011) (“[W]ell-functioning marketplaces depend on the vibrant flow of accurate reputational information”); Marcel Fafchamps, The Enforcement of Commercial Contracts in Ghana, 24 World Dev. 427, 428 (1996) (“Enforcement mechanisms based on reputation are vulnerable to disinformation: they do not operate well unless a complementary mechanism ensures the accuracy and veracity of the shared information.”).

Much of the existing literature about reputation’s flaws focuses on unintentional distortions caused by biases, the requirements of social niceties, and the dearth of fully representative information. This Article, by contrast, approaches the problem of the distortion of reputation from the dark side. It uses a rich set of sixteenth- and seventeenth-century English court cases and merchant correspondence to examine how the deliberate manipulation of reputation, and, importantly, people’s failure to verify the gossip and rumors creating such reputation, enabled fraud.10See Mark Granovetter, Economic Action and Social Structure: The Problem of Embeddedness, 91 Am. J. Soc. 481, 491 (1985) (“The trust engendered by personal relations presents, by its very existence, enhanced opportunity for malfeasance.”); Peter Kollock, The Emergence of Exchange Structures: An Experimental Study of Uncertainty, Commitment, and Trust, 100 Am. J. Soc. 313, 319 (1994) (“[R]isk creates a breeding ground not only for trust but for exploitation as well.”). It turns out that reputation was “a complex process,”11See Christopher McKenna & Rowena Olegario, Corporate Reputation and Regulation in Historical Perspective, in The Oxford Handbook of Corporate Reputation 260, 272 (Timothy G. Pollock & Michael L. Barnett eds., 2012) (“A second shortcoming of the historical literature is the tendency to take for granted the power of reputation and to depict it as an uncomplicated phenomenon, rather than as a complex process whose power to regulate may be weak or indeterminate.”). even in interconnected early modern markets in which merchants did business face-to-face and participated in active gossip networks.12See Daniel Defoe, The Complete English Tradesman 246–47 (1726) (discussing the commonality of merchant gossip); Letter from George Lowe to John Quarles, National Archives (U.K.), SP 46/176/fo201 (May 10, 1597) (reporting that the only thing merchants were talking about was other merchants’ financial situations). Even being caught, tried, and found guilty of a serious fraud did not necessarily undermine one’s business and perceived trustworthiness in these networks, which raises questions about how much the merchants depended upon reputation when making decisions about whom to trust.13See Silberstein-Loeb, supra note 8, at 27–28 (“Reputation may be too ambiguous and easily perverted to hold companies to account, for even when a firm is caught behaving badly, its reputation may emerge unscathed.”).

The English merchants were aware of the potential for fraud based on the manipulation of indices of reputation. The trials of fraudsters were public; friends and business partners were summoned to give depositions; and word got around town.14See, e.g., Emily Kadens, Cheating Pays, 119 Colum. L. Rev. 527 (2019) (describing the early seventeenth-century case of a cheating grocer, the large number of deponents, and the spread of gossip throughout London and into the provinces about his frauds). And yet, many merchants—just as diners, book buyers, moviegoers, hotel patrons, or purchasers of goods online today—preferred not to incur verification costs and instead chose to trust easily-obtained, but also easily-falsified information. The result was a windfall for scammers.

This Article seeks to contribute to the literature challenging the role of reputation in disciplining commerce. The historical disputes discussed here, which arose in the supposedly privately-ordered zone of the premodern merchant,15See Barak D. Richman, Stateless Commerce: The Diamond Network and the Persistence of Relational Exchange 133–34 (2017) (providing an overview of the law merchant theory and its influence); Bruce L. Benson, The Spontaneous Evolution of Commercial Law, 55 S. Econ. J. 644, 646–47 (1989) (on the concept of the privately-ordered medieval law merchant). add nuance to our understanding of how commerce works in the real world. Part I briefly reviews some of the problems the economic and network theory literature has identified with reputation. Part II turns to the history and demonstrates how trust could be cheaply manufactured due in part to potential partners’ failure to look beyond superficial indicia of reputation. Part III then considers why reputation might have been so susceptible to manipulation even in the face-to-face networks of early modern merchants.

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