After that light-hearted post I have to add this:
"Badges? We don't need no stinking badges!"
The badge should be somehow earned rather than just handed out and it should mean something to the people who honor it.
This the very heart of my concern and why I am arguing for an objective rather than subjective rating system. If the community is going to rely on it them it should be as objective and universal as possible. How you use that objective info is up to each account holder.
One thought I'm sensing here is this can't be a number or color. There may need to be different characteristics that each have a rating, like courtesy, communication, timeliness, volume etc. Of course that can become a rather large nightmare to devise a small but universally useful list of criteria to compile transaction stats for.
Badges are objective. How do you obtain a badge? An objective measurement. You could take the amount of posts a person has made on Bitsharestalk and use that as criteria for earning a badge.
I don't see how you can completely remove subjectivity. If I have to trust then I'm going to trust certain people more than other people based on some criteria I set.
I think for the most simple cases maybe you don't need badges but if you're trying to do a complete reputation system then you do need badges. If the goal is web of trust you need badges but if it's just an Ebay clone or Amazon clone you can do that exactly as they do it.
But if it is trust then suppose I want to trust people of a certain criteria more than other people? Suppose I want to trust community members who have a certain experience level?
I think we are onto the same idea but badges are like an object oriented way of thinking about it while you're thinking about it more as a set of rules. If people don't pass the objective measures they wouldn't have the badge in the first place so for example if a person has a 99% rating on transactions give them a badge.
It worked for the Boyscouts
http://www.scouting.org/meritbadges.aspx . Why not take it digital?