When is Reputation Bad

Ely, Fudenberg and Levine discusses a scenario where the presence of a reputation system may invoke bad behaviour in good players in order to maintain a good reputation. Framing their work within game theory, the authors describe a class of games where:

The key properties are that participation is optional for the short-run players, and that every action of the long-run player that makes the short-run players want to participate has a chance of being interpreted as a signal that the long-run player is "bad."

Paul Resnick has written a detailed review of the paper in his blog - also a recommended layman's read. There are interesting comments from readers along the lines of the age-old game theory vs. irrationality debate.

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