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Information Cascades and Fake Amazon Reviews

When and individual draws on information other than their own private information to make informed decisions, a phenomenon known as an information cascade can occur. The decision-making is not simply mindless imitation, however. Instead, it is the result of drawing rational inferences from limited information. This process is particularly prevalent in the world of e-commerce, where websites like Amazon, eBay, and Yelp gain popularity through customer reviews. People might have an inclination to buy a product but then might change their decision if they see that more people have written positive reviews about. That is they rely on information from purchasers to accurately evaluate certain products or services.

With these websites however, an issue with information cascades is that much of the information might be false. Amazon is currently filing a lawsuit against 1000 fake reviewers on their site. These reviewers engaged in a practice known as “astroturfing”, when a business will pay for positive reviews on their products. Not only do these reviews falsely promote the product, they also make other companies look worse in comparison.

This is a case in which falsified information can cascade and provide biased views to those who rely on information effects. If many of the views are positive due to outside payment, customers will be receiving biased information. If they make a decision based on this information (ex: if they buy a product that got a lot of good reviews, that are actually fake), then their decision will also in effect be biased since they have no experience with the product themselves. The cascading information will then always contain some amount of falsified opinion, which will skew the reviews of each subsequent customer.





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