Information Cascade in Amazon Reviews
Amazon is one of the world’s largest online markets, offering a range of products from trendiest shoes to the latest technology. For a buyer, reviews play a large role in whether or not they want to purchase a given product. Many time retailers will entice buyers to give stellar reviews in exchange for a discounted or even free item. As these reviews accumulate, other individuals are more likely to buy the product, because they believe that if a majority of people enjoyed the product, then they will likely enjoy it too. This scenario relates to the concept of “herding” or an “information cascade.”
Information cascades are prevalent in online shopping platforms like Amazon. For a given item, a user can give his or her approval or disapproval. The earliest users of the item, will not be as convinced of the item’s quality and will be more truthful in their reviews, because they do not have as much information on the item as will later users. However, as more and more users begin to approve of the item, the number of potential buyers for the item will accumulate, because they believe that if so many previous users enjoyed the item, then the item must be good. Many sellers on Amazon take advantage of the information cascade in order to convince more users to buy their products.
When an individual makes the decision to purchase a certain product, he or she will do research on which brand of product is better. For example, if someone has a choice between Item A and Item B, and Item B has more favorable reviews on Amazon, then the buyer is more than likely to purchase Item B. However, if Item B’s seller offered discounts for good reviews, then there could be a lot of bias in the product’s quality. Item A could actually be of better quality, and the only reason why buyers do not choose A is because it does not have as many favorable reviews. Therefore, information cascades can lead to non-optimal outcomes. For this reason, Amazon is getting rid of incentivized reviews.
https://www.cnet.com/news/amazon-to-crack-down-on-incentivized-reviews/