From Masum at firstmonday.org:
"Reputation is a surrogate — a partial reflection representing our "best educated guess" of the underlying true state of affairs. Active evaluation by looking behind surface signals can corroborate or disprove reputations, while indiscriminate use degrades their reliability."
The Halo effect is a factor that will impact reputation and typically will create a disconnection between perception and the underlying true state of the affair. When a company does not perform well on the stock market, it is easy to rationalize that the CEO did not do a good job. The same CEO doing the exact same things in a market where the company does well would be presented as a reference for good management. The good read on the matter is "The Halo Effect" from Phil Rozenwieg.
But if/when we can resolve this problem, then there is a big potential. From the report:
"just as selfish local actions with market incentives can lead to collectively efficient behavior, locally maximizing actions with reputation incentives have the potential for similar guided emergent behavior that exceeds what might have been designed by a conscious planner."
I believe that this is a key element to making capitalism more sustainable. Definitely something worth working on!
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