Online Reputation System Issues

Online reputation mechanisms have emerged as a viable alternative to the more established institutions for building trust (such as formal contracts) in electronic environments where such contractual guarantees cannot be efficiently enforced. On eBay, for instance, an online feedback mechanism that encourages buyers and sellers to rate one another seems to have succeeded in encouraging cooperative behavior in an otherwise very risky trading environment.

Negative feedback reputation systems have been shown mathematically to always spiral into chaos. The reason? People with bad reps just start up a new identity. Effectively, this means a free pass on bad behavior. And let’s not kid ourselves — there’s something called the “fundamental attribution error” by the psych types, which says that we mistakenly think that nobility and good behavior is inherent in people’s character. But it’s not. Given the opportunity, most people will do something that can be classified as “bad.” I know this is a kinda cynical thing to say, but it’s what the research shows.
Positive feedback reputation systems do work, as long as there’s an expectation of repeated interaction (in other words, if you think you might see the other person again). In a large enough population that isn’t segmented into cohorts or groups of appropriate size, this repeated interaction may not be a reasonable expectation. In other words, too mobile and big a group of players on your server, such as interacting with a different group of folks every night, and the incentives to get a good rep go away. (In fact, they might actually reverse: farm good rep in order to blow it on a big bad action).
Single-stage reputation systems are vulnerable to farming. This can be summarized by pointing to eBay. In a single-stage rep system, your “star” rating is based purely on how many folks give you a positive rating. The quality of their rep doesn’t matter. The result is that you can farm positive reputation pretty easily, because any new account can give positive transaction ratings.

Source:
http://www.rhsmith.umd.edu/faculty/cdell/reputation.html
http://www.raphkoster.com/?p=303