for e-Business

F. DignumF. DignumUtrecht UniversityUtrecht University

Trust Reputation

and

Contents

• Trust and risk

• Trustworthy trade procedures

• Trusted partners and reputation

• Conclusions

Conclusions

• Trust is necessary to make e-business transactions work

• Trust is a very complex concept that consists of many facets

• Some facets cannot be influenced or assessed properly

• Trade procedures can be verified on trustworthiness• Reputation mechanisms can be used to check

trustworthiness of a partner• Trusted third parties help to bootstrap trust

Trust and risk

Why is TRUST such a big issue in e-business?

E-business is the exchange of products (or services) and money whereby the partners interact by electronic means (WWW, e-mail, EDI, etc.)

Social DilemmaRationally, the expected utility for each partner is highest if it will defect (I.e. not deliver its part of the exchange).

Only if the trust in a good outcome of the exchange exceeds the risk that the partner will defect will the exchange take place!

Risk and costsCan the risk of the exchange be reduced or eliminated?

Yes, by establishing elaborate external enforcing mechanisms.

Disadvantage: these mechanisms are costly–OK for B2B transactions (as in international trade)

–To expensive for most B2C transactions

Trust in what?

•Trust in procedure– Fairness

– Exceptions

– Accountability

•Trust in partner– Information about partner identity and reliability

– Reputation of partner (on Internet and/or “real” world)

– Information about product

Trustworthy trade procedures

• When are trade procedures trustworthy?

• Use some general “auditing” principles to check the features of the trade procedures.

• Formally verify whether the procedure complies to the principles

– Note: this is difficult, but only has to be done once!

Why formal verification?1. Ensure a kind of “fairness” in trade

procedure2. Existing control replaced by more

efficient ones 3. New ways of business for which existing

controls do not work 4. Not all existing procedures can be

electronified

Example Audit Principle

If the party playing Role 1 does not trust the party responsible for Role 2,

then before Role 1 executes a primary activity it should have witnessed the performance of the counter-activity by Role 2,

unless it has received evidence that Role 2 has executed its tasks.

Example

Before Paying, the Buyer (Role 1) must first witness or receive evidence that the Seller (Role 2) did deliver the goods

Issuing bank corresponding bank

consignee shipper

carrier

1. Purchase order

2. acknowledgement

3. LC request

4. LC

5. LC 7. BOL 7. money

6. BOL10. BOL

8. BOL

9. BOL

8. money

9. money

10. Goods 6. Goods

Example

Check Documentary Credit Procedure

Formal representation

1. Describe audit principles and procedures in the same formalism. Then the verification gets down to proving “inconsistencies” between the principles and trade procedures.

2. A formal description of the audit principles facilitates the analysis of the principles themselves

Compliance auditing

Auditing: Check if Procedure Complies with Audit Principles

Compliance Definition:

a Trade Procedure Complies with the Audit Rules, if after any series of events S1,.., Si that the trade procedure applies to, no future state Sj (i < j) can be reached such that

  C1) Sj satisfies the antecedent of an audit rule

C2) Sj does not violate obligations from the trade procedure

C3) Sj does violate the consequence of the audit rule.

PPP does NOT comply to rule II

PPP is not trustworthy for the buyer

- if shipment takes place at the other end of the world

- e.g. Buyer in Hong Kong and Seller in Rotterdam

 

- buyer will not accept such a procedure if he receives no evidence that the seller indeed shipped the goods to him.

How to improve PPP?

introduce extra step: seller must first send proof of shipment to the buyer

e.g. Bill-of-Lading issued by carrier (third party t3)

New PPP':

[send(r1,r2,order)]Or2r1(ship(r2,r1,goods))

Or3r1(testify(r3,r1,(ship(r2,r1,goods))))

[receive_evidence(r1,DONE(ship(r2,r1,goods))]

Or1r2(arrange(r1,r2,payment))

Trust in partner

• Knowledge of partner– Brand name

– Size of the organization

– Reputation

– Importance of positive result of transaction for partner

• Where does the information about the partner come from?

• Geographic and legal proximity

The nature of reputation• Reputation is compositional: the overall opinion on an entity is

obtained as a result of the combination of different pieces of information.

• Reputation is subjective-Each individual has different experiences.

-Each individual has a different social environment.

-Each individual evaluates things in a different manner.

The nature of reputation• Reputation is a multi-facet concept.

Being a Good flying company

Having good planes

Never losing luggage

Serving good food

Reputation of...

Reputation is influenced by the social environment.

Basic components of reputation

• Outcome:

The initial contract – to take a particular course of actions

– to establish the terms and conditions of a transaction.

AND

The actual result of the contract.

Basic components of reputation

Delivery_date =c 10/02/02Prize =c 2000Quality =c A

Delivery_date =r 15/02/02Prize =r 2000Quality =rC

Contract

fulfillment

Outcome example

Basic components of reputation

agent a’s outcomes data base

),,,,,( tXXIbao c contracting

parties

issuesindex

contractualvalues

realvalues

time

I = {Price, Quality, Delivery_date}

baODB ,

aODB

baii n

ODB ,},,{ 1

The ReGreT system

ReGreT system

Ontological dimensionPossibility to combine reputations on different

aspects to calculate complex ones

Individual dimensionUse of direct interactions

Social dimensionUse of information

coming from other agents and the social environment

1

2

3

5

4

6

7

OUTCOMES

Ontologicaldimension

Individual &Social

dimensions

REPUTATIONS

ReGreT system

Individual dimension

Individual dimensionModels the direct interaction between two partners.

• The reputation based in this dimension is the most reliable. It takes into account all the peculiarities of the target partner and does not rely on behavioural trends.

• Even “black sheep” partners can be given a reputation using this dimension.

•It is not easy obtain the necessary information to calculate it.

Social dimension

Social dimensionTwo types of social reputation:

• Witness reputation: Based on the information about the target partner coming from other parties.

•System reputation: Default reputation value based on the role played by the target party or the reputation ascribed to it by a trusted third party.

System reputation

• This part of the reputation comes from the role a partner plays.

• E.g. banks are usually thought to be reliable partners

• It can also follow from the source of information about the partner.

• Trusted Third Parties can certify the trustworthiness of a party with respect to some aspects

• E.g. credit worthiness as certified by a bank

Witness reputation

“Reputation that an agent builds on another agent based onthe beliefs gathered from society members (witnesses).”

Problems of witness information:

• Can be false.

• Can be incomplete.

• It may suffer from the “correlated evidence” problem.

Positive vs. Negative reputation• Negative experiences with a party can easily be faked• Result is similar to gossip: easily destructs community

• Positive experiences are more difficult to fake • Good example: reputation system of e-Bay

Outcome reputation

Witnessreputation

Neighbourhoodreputation

System reputation

)( baO RL

2/)1()( IbaW RL

2/)1()( IbaN RL

)(1 NWIS

O

W

N

Putting all together: The Regret system

Conclusions

• Trust is necessary to make e-business transactions work

• Trust is a very complex concept that consists of many facets

• Some facets cannot be influenced or assessed properly

• Trade procedures can be verified on trustworthiness• Reputation mechanisms can be used to check

trustworthiness of a partner• Trusted third parties help to bootstrap trust