Thursday, June 19, 2008

On A Scale of 1 to 5

Where would we be without rating and reputation systems these days? Take them away, and we wouldn’t know who to trust on eBay, what movies to pick on Netflix, or what books to buy on Amazon. Reputation systems (essentially a rating system for people) also help guide us through the labyrinth of individuals who make up our social web. Is he or she worthwhile to spend my time on? For pity’s sake, please don’t check out our reputation points before deciding whether to read this article.

Rating and reputation systems have become standard tools in our design toolbox. But sometimes they are not well-understood. A recent post at the IxDA forum showed confusion about how and when to use rating systems. Much of the conversation was about whether to use stars or some other iconography. These can be important questions, but they miss the central point of ratings systems: to manage risk.

So, when we think about rating and reputation systems, the first question to ask is not, “Am I using stars, bananas, or chili peppers?” but, “what risk is being managed?”

What Is Risk?

We desire certainty in our transactions. It’s just our nature. We want to know that the person we’re dealing with on eBay won’t cheat us. Or that Blues Brothers 2000 is a bad movie (1 star on Netflix). So risk, most simply (and broadly), arises when a transaction has a number of possible outcomes, some of which are undesirable, but the precise outcome cannot be determined in advance.

Where Does Risk Come From?

There are two main sources of risk that are important for rating and reputation systems: asymmetric information and uncertainty.

Asymmetric information arises when one party to a transaction can not completely determine in advance the characteristics of the other party, and this information cannot credibly be communicated. The main question here is: can I, the buyer, trust you, the seller, to honestly complete the transaction we’re going to engage in? That means: will you take my money and run? Did you describe what you’re selling accurately? And so on.

This unequal distribution of information between buyers and sellers is a characteristic of most transactions, even in transactions where fraud is not a concern. Online transactions make asymmetric information problems worse. No longer can we look the seller in the eye and make a judgment about their honesty. Nor can we physically inspect what we’re buying and get a feel of its quality. We need other ways to manage our risk generated by asymmetric information.

The other source of risk is not knowing beforehand whether we’ll like the thing we’re buying. Here honesty and quality are not the issue, but rather our own personal tastes and the nature of the thing we’re buying. Movies, books, and wine are examples of experience goods, which we need to experience before we know their true value. For example, we’re partial to red wine from Italy, but that doesn’t mean we’ll like every bottle of Italian red wine we buy.

Managing Risk with Design

Among the ways to manage risk, two methods will be of interest to user experience designers:

1. Signaling is where participants in a transaction communicate something meaningful about themselves.
2. Reducing information costs involves reducing the time and effort it takes participants in a transaction to get meaningful information (such as: is this a good price? is this a quality good?)."    (Continued via Boxes and Arrows, Alex Kirtland and Aaron Schiff)    [Usability Resources]

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