Earlier this year, eBay made the first changes ever to its feedback system. The most controversial of them was ending the ability of sellers to give feedback on buyers, leaving people who felt harmed by a purchaser with no way of warning their auctioneering peers. eBay users found this so disturbing they organized a week-long strike. Sensing an opportunity in the uproar, a company called Fair Outcomes is now offering an arbitration system that's centered around maintaining the reputations of both sides involved.

The gist of the problem is simple; sellers on eBay do better when they've established a good reputation. But the value conferred by a good reputation can leave them hostage to an angry buyer, who can extort concessions by threatening to complain about a deal. With the feedback on buyers gone, sellers no longer have a way to defend themselves.

The new system, called Fair Outcomes, is the product of a company that offers consulting services based on game theory, a branch of mathematics often used to help describe optimal outcomes in social systems. The principles behind Fair Outcomes are laid out in a paper hosted on the site (PDF), but are pretty straightforward: give the seller the opportunity to settle the dispute or, failing that, demonstrate that they were the reasonable party in it.

The seller starts the process by making a confidential settlement offer and setting a deadline. The mere fact that they entered the process, according to Fair Outcomes, should protect their reputation, as it demonstrates their interest in reaching a fair settlement. The buyer has an indefinite number of opportunities to meet or exceed the offer by the deadline; if that happens, the dispute is settled, and the reputation of both parties remains intact. If this process fails, the buyer has the option of going to arbitration, with the choice of either accepting any decision, or only accepting the arbitration if they win.

The fact that the seller could come out of the arbitration stuck with the buyer's conditions, should, in theory, compel the seller to make a reasonable initial offer. The fact that buyers have so many chances walk away should help identify those that are making unreasonable demands: the system will identify those that aren't interested in making reasonable offers or quit if they don't win. In those cases, the seller may not end the dispute, but their reputation should be maintained.

The service carries a fee of $10, so it should be useful for handling a broad range of disputes that don't warrant involving the legal system. One of the big limitations in the practical application of game theory, however, is that it assumes the individuals involved can rationally examine their decision-making process. eBay disputes are likely to get emotional, especially with reputations on the line. But, even if the process doesn't work well in terms of ending the dispute, it does provide sellers ample opportunity to protect their reputations by demonstrating their willingness to settle with irate buyers.