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Information Cascades in Online Shopping – What should I buy?

Nowadays, you can basically do anything online — order food, shop for clothing, pay bills, etc. While shopping online, it’s safe to say that people typically read the reviews before purchasing the item (especially if the said item is on the higher-priced range). In this article, the author mentions that “if they do not have enough information, they will need additional information to help them out. If they do not have enough information, they will search through online channels, e.g., online catalogs, websites, or search engines” (Katawetawaraks & Wang, 67). The extent that the buyer goes to make sure the item is worth buying seems to lean towards the opinion of others. While the buyer may feel attracted to the item from first glance and want to buy it immediately, s/he will take the reviews of customers who have already bought the item into account because their comments may or may not affect the “payoff” they receive (ex. whether or not they will actually like the item in person).

This article directly corresponds to what we learned about information cascades in class because in this case, the buyers are allowing the customer reviews influence their decision to purchase/not purchase the item. They are abandoning their own information — their interest in the item prior to reading reviews — in favor of inferences based on earlier people’s actions. By doing so, the buyers receive direct-benefit effects because the actions of others (customer reviews) are affecting your payoffs directly (to buy or not to buy as well as to like the item or not to like after bought). Though customer reviews typically provide more good than harm, every customer has his/her own preferences and just because one person doesn’t like the item, doesn’t mean that you will dislike it as well. Unfortunately, the information cascade has already occurred after these customers posted their reviews, so in a way, you as the buyer also receive informational effects in that what these customers do (post reviews) indirectly change your decision. You as the buyer do not know what the customers know, but what they do (post a review on their opinion of the item). Though lower-rated items are least likely to be bought, there may be a chance that the said item is actually something you like. I like say everyone should give things a chance, but then it would be rather hypocritical of me to say that.

Source: 

http://www.magscholar.com/joomla/images/docs/ajbr/ajbrv1n2/Online%20Shopper%20Behavior%20Influences.pdf

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