eBay let strangers grade each other and the market policed itself

Pierre Omidyar's AuctionWeb, launched in September 1995, matched anonymous strangers to trade sight-unseen over the mail — the exact setup economist George Akerlof had described decades earlier as a "market for lemons," where buyers who can't verify quality assume the worst and honest sellers get driven out. Online, none of the usual signals of a trustworthy trader — a shopfront, years in the same location, a reputation in town — existed at all.

The conventional fixes were institutional: eBay itself could vet sellers, insure transactions, or require identity verification before anyone could list an item — the way a bank vets a borrower. Omidyar instead gave that job to the users themselves. When the site was about six months old, he launched the Feedback Forum, letting any buyer or seller leave a public, cumulative rating on the other party's trading identity.

The Feedback Forum: cumulative public ratings attached to every trading identity.

Attached a permanent public score to each identity, turning one-shot trades into repeated games where cheating taxes future deals, so buyers priced risk.

A single anonymous trade is a one-shot game with an incentive to cheat, causing the 'market for lemons' failure.

A permanent public score turns it into a repeated game: cheating now taxes all future trades under that identity.

Buyers can see the score before trading, so they price risk directly, paying more for established identities.

The platform avoids being the bottleneck of vetting every seller, keeping the marketplace open and scalable.

When trust is missing, don't certify people yourself—give users a way to build and display reputation, and the market will price risk on its own.

Made million-strong stranger markets self-policing; the template for every rating system since.