On Information Distortions in Online Ratings

“If consumers were perfectly homogeneous when writing a review, they would implicitly reveal the quality of the object. Heterogeneity of the consumers creates a problem both ex ante and ex post. Ex ante, only consumers who expect to be satisfied by the product purchase the item. Ex post, only the reviews of consumers who bought the product are available. Given this bias, it is not clear what information reviews communicate and whether consumers can learn the quality of the product over time. The present paper aims to investigate this question and what type of review information leads to social learning.”

“One of the issues that arises when dealing with ratings is why people write reviews. Even if in most cases there is no immediate reward for writing reviews, people write them abundantly. This is not a marginal phenomenon that can be classified as a pathology. One common explanation is that consumers write reviews just out of altruism. They do it to be helpful toward other consumers. If this were the case, then they would write reviews that are as informative and as useful as possible to future consumers. That is, they would write about the intrinsic quality of the product that they bought (if they can identify it), rather than about their own subjective experience when they consumed the product. A second possible explanation is that consumers write reviews for the same reasons they post pictures on Instagram or comments on Facebook or Twitter. They just want to express themselves and declare who they are, what they feel, what they think. In this case they will write more about their subjective experience than about the quality of what they bought.

While we will comment on the altruistic case, it seems intuitive that in such a case, customers should learn over time. This indeed happens in the model we consider here.”