Editing Reputation (section)

=== Game theory ===
When a DAO focuses on immediately fungible cash rewards as its highest goal, then a [[wikipedia:Zero-sum_game|zero-sum]] incentive structure is established, which leads to harmful competition that destabilizes the group. When, instead, reputation is the measure of power over decision making, then a positive-sum incentive structure obtains.

When fungible cash is the goal, there is a limited quantity available in any business transaction. In that case, whenever your counterparty competitor gets any of the cash on the table of your business deal, then there is exactly that much less for you to enjoy (zero sum). The fungibility of cash rewards focus the incentives on the present. But the right perspective in good business is to concern yourself with the next transaction and the one after that. When the parties are concerned with business in the future, then the incentives change. 

When a single game turns into a repeated game<ref>The book<br>
::George J. Mailath & Larry Samuelson (2006) ''Repeated Games and Reputations: Long-Run Relationships'', Oxford University Press<br>
gives an introduction. There is much more game theory work that can inform the design of the incentive structure of DAOs and REP tokens. Psychological, sociological, and game theory arguments for the effectiveness of the general idea of reputation include signalling, competitive altruism, reputation-based partner choice, and indirect reciprocity. See<br>
::Jillian J. Jordan, (2023) "[https://doi.org/10.1016/j.tics.2023.06.005 A Pull Versus Push Framework for Reputation]", Trends in Cognitive Sciences<br>
and references therein.
Jordan's work on so-called push vs. pull mechanisms for analyzing the effectiveness of reputation aligns well with our concern with [[Transcendent values#Primitive values|individual power vs. group power]] when designing decentralized organizations.
</ref>, the incentives are transformed. In a system with repeated business, reputation is actually a positive sum quality, since it can be created from nowhere. Whenever two parties behave well and collaborate productively, perhaps sacrificing their own short-term gain on some aspects of the deal, they produce valuable reputation that demonstrates the market is a healthy business environment with the promise of further positive interactions in the future. When we are focused on creating the opportunities for future business, our concern becomes improving our reputation over our temporary cash total. 

Reputation is fundamentally different from cash, because reputation is a positive-sum index, not zero-sum. Reputation can be created in the course of any transaction, from nowhere. Positive collaboration leads to increased reputation for both parties. Outsiders can watch the collaboration and gain new respect for both participants, and for the platform that hosted the business deal, which can attract future business deals and future profits. When there is a system for remembering the past behavior of business parties, when there is a system for accounting for reputation, then collaboration becomes a more attractive strategy than competition. 

Gaming the system is an ever-present threat to any algorithmic design for representing meaningful reputation. With this in mind, several qualities are necessary for making a secure and meaningful reputation token. Below we analyze how each of these qualities are satisfied by DGF after detailing the REP token design.