Updated: May 4
Hardly a week goes by without some sorry tale of a lost reputation. If it isn’t a politician accused of ruthless betrayal, or a bank’s name sullied by the fraudulent activities of its traders, it is the country itself which suffers the ignominy of being named-and-shamed by some international body or credit rating agency. Reputations are clearly things that people, firms and nations can have, and lose. But what are they? Where do they come from? What are they worth? And what does one do repair a tarnished one?
Do I have a reputation? I don’t think I do. Ordinary people do not have reputations? Nobody ever earned a reputation for being Ms or Mr Average? To be reputed one must occupy a position sufficiently far from the average to raise awareness among potential observers; one must deviate markedly from some prevailing standard or norm. Whether this deviation is to the positive or negative side is irrelevant for this awareness, although we seem to be more aware of disreputable souls, and lost reputations, than the contrary. One might argue that this is because undershooting a behavioural norm is easier than overshooting one. After all, earning a reputation for being ‘lazy’ or ‘dim’ would seem to be within more people’s grasp than one for being ‘industrious’ or ‘clever’. However, this is not strictly true because we only really perceive deviations from the norm, not the norm itself. If everyone is lazy, laziness becomes the norm, making it difficult to deviate to the downside. In this case, it is far easier to raise awareness, and build a reputation for industriousness, by doing a modest amount of work. So the apparent preponderance of lost reputations is more likely due to the fact that we humans are just more sensitive to any kind of loss than because there are more of them.
A second prerequisite for a reputation is that observers must have made an assessment about the quality – admirable or detestable – of the perceived deviation. This judgement cannot be made in absolute terms, though, only relative to the prevailing norm. These norms can also change over time, meaning that the same behaviour can be worthy of a reputation in one period and not in the next. For instance, a country that was able to hold on to its top sovereign rating during a financial crisis, when so many others were losing theirs, could be seen as a more reputable, even though the underlying behaviour did not change. Similarly, norms vary from context to context. As a consequence, a behaviour considered ‘feisty’ on an investment bank’s trading floor could be condemned as morally reprehensible in a wider society.
To earn a reputation, therefore, one simply has to deviate from the norm that prevails in the domain whose observers one wishes to appeal to. If the goal is solely to raise awareness, the direction of the deviation is unimportant: good reputation or bad reputation; famous or infamous; noble or ignoble. It’s all good. However, as soon as one’s behaviour again starts to resemble that of the crowd, typically because peers and rivals start to mimic the deviant behaviour, the initiator becomes invisible once again.
If the objective is to have a good reputation, again the prevailing norm in the context is what matters, not the objective qualities of the person or thing. In a study of 600,000 rental properties listed on the internet platform Airbnb, almost all were rated better than 4.5 stars out of a possible five. Practically none were below the theoretical 3.5 ‘average’. Compare this to the 3.8 mean rating of all the hotels listed on TripAdvisor. This doesn’t mean that travellers will typically enjoy staying in someone’s spare bedroom more than in a hotel, it is just that the ratings norm is different. Even identical vacation properties listed on both sites attract better ratings on Airbnb than on TripAdvisor. So this means that earning a positive reputation on the former is more difficult: one can be good on Airbnb, but one cannot earn a reputation for being good.
When trying to repair a tarnished reputation, the instinctive reaction is to act on oneself. For instance, one could try to improve one’s behaviour (or that of one’s firm) in order to represent the disreputable act as an outlier (fire somebody), an anomaly (hire somebody), or a thing of the past (improve internal controls). But this approach is both effortful and time-consuming. Furthermore, as one’s behaviour returns to the norm, one loses the awareness of precisely the observers one seeks to influence. A more frugal approach is often to encourage those same observers to view the behaviour against an alternative norm, one that reflects it in a better light. ‘Reckless’ could become ‘pioneering’; ‘online troll’ could become ‘provocative thought leader’; and ‘ruthless ambition’ could become ‘patriotic duty’.
Much academic effort has gone into assessing the monetary value of a reputation, be it that of a firm or of any of its key personnel. It is undeniable that reputations influence the firm’s competitive position and its terms of trade, so it ought to be possible to establish a dollar value. However, it must now be clear that a reputation depends not only on what the firm does, but also on the actions of its peers and rivals, the evaluation norms of its environment, the perceptions of its observers, and on the ease with which alternative norms could be imposed on these observers. Whatever this dollar value is, therefore, it could be subject to abrupt and sizeable change.
This article was first published by TCAM Asset Management Ltd
 Zervas, Georgios and Proserpio, Davide and Byers, John, A First Look at Online Reputation on Airbnb, Where Every Stay is Above Average (January 28, 2015). Available at SSRN: http://ssrn.com/abstract=2554500