# Paying for Honesty Without Knowing the Truth: Reputation-Penalty Design for LLM Marketplace Agents

arXiv: https://arxiv.org/abs/2607.28330 · HTML: https://mlsanity.com/paper/2607.28330/

## Key facts

- Cited by 1 papers in the map (data through 14 Oct 2026).
- Placed in Financial trading and forecasting agents, one of 16 directions in LLM agents and tool use.
- Builds on 12 of its 42 references that are in the map.
- First posted on arXiv 30 Jul 2026.

## Placed in

- LLM agents and tool use / [Financial trading and forecasting agents](https://mlsanity.com/agents/financial-trading-and-forecasting-agents/)

## Builds on (most cited first, 12 of 12)

- [ReAct: Synergizing Reasoning and Acting in Language Models](https://mlsanity.com/paper/2210.03629/) (2022)
- [Reflexion: Language Agents with Verbal Reinforcement Learning](https://mlsanity.com/paper/2303.11366/) (2023)
- [Generative Agents: Interactive Simulacra of Human Behavior](https://mlsanity.com/paper/2304.03442/) (2023)
- [MultiAgentBench: Evaluating the Collaboration and Competition of LLM agents](https://mlsanity.com/paper/2503.01935/) (2025)
- [EconAgent: Large Language Model-Empowered Agents for Simulating Macroeconomic Activities](https://mlsanity.com/paper/2310.10436/) (2023)
- [Evaluation and Benchmarking of LLM Agents: A Survey](https://mlsanity.com/paper/2507.21504/) (2025)
- [Large Language Models can Strategically Deceive their Users when Put Under Pressure](https://mlsanity.com/paper/2311.07590/) (2023)
- [Cooperation, Competition, and Maliciousness: LLM-Stakeholders Interactive Negotiation](https://mlsanity.com/paper/2309.17234/) (2023)
- [AI-LieDar: Examine the Trade-off Between Utility and Truthfulness in LLM Agents](https://mlsanity.com/paper/2409.09013/) (2024)
- [Magentic Marketplace: An Open-Source Environment for Studying Agentic Markets](https://mlsanity.com/paper/2510.25779/) (2025)
- [Evaluating LLM Agent Collusion in Double Auctions](https://mlsanity.com/paper/2507.01413/) (2025)
- [Temporal Opinion Spam Detection by Multivariate Indicative Signals](https://mlsanity.com/paper/1603.01929/) (2016)

## Built on by (most cited first, 1 of 1)

- [RSIAgent: Autonomous Exploration for Recursive Self-improvement in New Environments](https://mlsanity.com/paper/2609.15364/) (2026)

## Abstract (arXiv)

LLM agents increasingly act as autonomous merchants that write their own product listings, and under competitive pressure, they fabricate attributes to win sales. Even under instructions to be honest, they fabricate attributes in a majority of listings across models. A platform's obvious remedy---verifying each claim against the truth---is unavailable, because it observes only a noisy, biased complaint signal, never the ground truth. We design CARP, a reputation-penalty mechanism with a deadband that forgives complaint noise and a state-dependent severity that counters reputation-driven detection erosion. CARP requires no product-level ground truth and is robust to strategic gaming. CARP protects consumers by suppressing the sales volume of low-rated liars while sparing honest sellers. Paired with SPARC, it closes most of the consumer-welfare gap relative to a perfect-information oracle, without ever accessing the truth. It also achieves the best welfare of the policies we compare. We further show that this felt penalty becomes behaviorally binding through SPARC, a byte-clean code-gated reflection mechanism: LLM merchants fabricate when lying is free but restrain themselves when fabrication costs them sales, a self-interested response rather than compliance. We trace this distinction to penalty-gated self-correction reasoning, and observe the binding across models, with supporting confidence intervals.