Improving the Governance of Digital Platforms with Interactive Marketplace Experiments
Swapneel Mehta, Aaron Nichols, Nina Mazar, Marshall Van Alstyne
Lying Online is Costless and Hard to Limit
No consequence to posting a lie on platforms right now. What about countermeasures?
Current interventions suffer from limitations
Arms Race
Discrediting the Raters
Wrong Party Responsible
Cheaper to Produce Fake News
Can we (re)define the Fake News Problem?
Identify
Measure
Mitigate
Who decides what is truth?
Who is responsible to counter it?
Who should measure the impact of falsehoods?
Speakers?
Listeners?
Platforms?
Others?
Speakers?
Listeners?
Platforms?
Others?
Speakers?
Listeners?
Platforms?
Others?
Balance the rights of speakers and listeners on the platform
Platforms need to balance speaker’s right to free speech with listener’s right to selective hearing
Fake news matters only when it causes the listener to commit decision errors
Only speakers prioritized: spam�Only listeners prioritized: censorship
How to find an equilibrium between both?
Speech Markets fail to find equilibrium because decision error is an externality
Speakers (making claims)
�Free Speech
Listeners (decision error)
�Reporting Regulations
Marketplace!
Identify
Measure
Mitigate
Who decides what is truth?
Who is responsible to counter it?
Who should measure the impact of falsehoods?
externality = Side effect that is not reflected in the cost of a good.
Internalizing the externality so marketplaces can find equilibrium
Platforms = two-sided marketplaces.
Fake news (externality) = marketplace failure.
Marketplaces do not self-correct market failures!
Restructure incentives for production of fake news in the marketplace aka internalize the externality!��Make it costly to produce fake news.
Economics offers Nobel Prize winning theories to inform this work
First Fundamental Welfare Theorem: “perfect information to both sides in a complete market with perfect competition results in economic equilibrium.”
However, externalities result in market failures! → We need a mechanism that prices externalities into the cost of goods.
Pigouvian tax: make products more expensive when they produce externalities. But how expensive?
Coase Theorem: allow bargaining for goods that produce externalities for market to reach Pareto-optimal outcome.
Increasing production cost = shifting responsibility onto speaker of falsehoods.
Complete = Negligible transaction costs, every asset has a price. (cf. Adam Smith, Kenneth Arrow and Debreu)
Commercial Marketplace to Test these Theories
Two-sided virtual market
Selling goods online based on ads
Multiple rounds of play
Results revealed to both parties after each round
Feedback = Ratings by Buyers
Points to track score
Lower quality products are cheaper to produce, more profitable!
Buyer has to buy high quality products based on advertisements that may be misleading if product is originally low quality.
Seller has to decide what quality of product to produce (high or low). Advertisements always are of high quality.
Sellers can select true quality of the product accordingly determining whether ad is honest or dishonest
Buyer can decide which product to purchase after looking at all ads in the market.
Results Revealed after each Round
Seller chooses what product to produce and advertise them (honestly / dishonestly)
Multiple different sellers with their own sales strategies enter market
Buyer chooses up to 3 products based on advertisements
Buyer is shown true product quality and whether or not they were misled
Seller makes profits accordingly – low quality more profitable!
Experimental Setup
5 rounds of gameplay
Human players as consumers
Play vs. 7 “bot” producers
Producers exhibit adaptive strategies based on consumer response!
Can we increase social benefit to both sides using warrants?
May draw parallels with Robert Axelrod’s Game of Life design, except with human players.
Buyer
Honest�Seller
Opportunist�Seller
Politician�Seller
Goldfish�Seller
Cheat�Seller
Bait and Switch Seller
Reformed�Seller
Introducing (optional) self-certification or “warrants”
Producers choose to escrow additional amount to “back their ad claims”.
If unchallenged, amount returned to producer after round.
If challenged, adjudication based on honest or dishonest advertising
Rewards honest advertisers with an optional mechanism to back the validity of their claim!
“Warrant” Label increases credibility
Escrowed amount scales with “reach”
Buyer can Challenge Warranted Claims to Win Escrowed Amount
Seller Personas Designed to Reflect Human Tendencies
Always Honest (warrants) | Choose H + warrant |
Always Cheat | Choose L |
Goldfish | Choose L until 1st purchase, switch to H + warrant until 1st purchase, restart with L |
Bait-and-switch | Choose H + warrant until 1st purchase, switch to L until 1st purchase, restart with H + warrant |
Reformed Cheat | Choose L until 1st purchase, switch to H + warrant |
Politician | Choose H + warrant until 2 purchases, switch to L until purchase, switch to 2H + warrant |
Honest Opportunist | Choose H + warrant through penultimate round then L |
When selling honestly, it is strictly more profitable to warrant a good / service because warranted goods sell for 10% more money.
Without Warrants: Cheating is Significant in the Market…
Producers try to cheat a lot… of course this is set up by our choices of producers but remember it is adaptive, so it is driven by consumer behavior.
…and it seems like it does pay (sales high) at first glance…
…but gaming the system does not work. Market collapses!
Sales diminish over 5 rounds, for every single producer strategy!
Introduction of Warrants Incentivizes Honesty in Marketplace
~30% better for honest sellers
~600% better for honest sellers
Warrants Market: Honesty Pays, although Reputation mining works
But this is kind of by design? Need to evaluate a more stringent tradeoff (e.g. warranted products cost more, money runs out) and see if this trend still persists.
Honest sellers receive higher sales in warrants marketplace
Summary
Still very early stage results (50 users, 250 rounds of gameplay)
Evidence indicating support for hypothesis that warrants can improve honesty in marketplace
Who decides what is truthful? Author can warrant all types of claims, market can adjudicate.
What about someone who has lots of money to waste on lost challenges? In current market, anyway no penalties for them! Warrants limit reach, reputation much faster.
Open Challenges:
Reputation: Ratings are low for cheats
Note: scales on Y-axes are different by 8x
Honest producers are highly rated
Bait and switch leads to poor ratings!
Goldfish (forgetting honesty / lies) also rated poorly
Politicians win by mining reputation periodically!
Reputation: Brand changes frequent for cheats
“Brand changes” are free when reputation hits a low, reflecting how sellers simply change accounts when they cheat buyers in real life
Cheats and goldfish have most brand changes.
Restarting sales without a reputation in theory should affect the volume of sales by sellers
Warrants may offset this delay by demonstrating positive signal from any new seller without a reputation
Can we define the Fake News Problem?
Claims are hard to prove/disprove
Context is challenging to ascertain
Who decides what is truth?
Who counters it?
Context is private
Even Facts change over time
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