Reputation is a way to change many one-time Prisonner's Dilemmas into one big Iterated Prisonner's Dilemma, where mutual cooperation is the best strategy for rational players. But how exactly does it work in real life?

I guess it works better when a small group of people interact again and again; and it works worse in a large group of people where many interactions are with strangers. So we should expect more cooperation in a village than in a big city.

Even in big cities people can create smaller units and interact more frequently within these units. So they would trust more their neighbors, coworkers, etc. But here is an opportunity for exploitation by people who don't mind frequent migration or changing jobs -- they often reset their social karma, so they should be trusted less. We should be also suspicious about other karma resetting moves, such as when a company changes their name.

Even if we don't know someone in person, we can do some probabilistic reasoning by thinking about their reference class: "Do I have an experience of people with traits X, Y, Z cooperating or defecting?" However, this kind of reasoning may be frowned upon socially, sometimes even illegal. It is said that people should not be punished for having a bad reference class because of a trait they didn't choose voluntarily and cannot change. Sometimes it is considered wrong to judge people by changeable traits, for example how they are dressed. On the other hand, reference classes like "people having a university diploma" are socially allowed.

Here is an interesting (potentially mindkilling) prediction: When it is legally forbidden to use reference classes and other forms of evaluating prestige, the rate of defection increases. (An extreme situation would be when you are legally required to cooperate regardless of what your opponent does.)