Information Cascades and Consumer Decisions
One central topic in this course has been analyzing how opinions, fads, and political movements spread through society; and politics of Web information and on-line communities. Recently in class we have been learning about the power of information cascades and threshold cascade models. An interesting application of threshold cascade models and its influence on consumer decision making is online reviews. In an earlier blog post, a student discussed a study on how Skype data revealed patterns on social adoption. In this study, a behavioral threshold theory was utilized to categorize people by how susceptible they are to behaving or acting based on other people’s decisions. The study looked at various different individuals with different personality traits. Ultimately, the study concluded that the number of people who have a ‘stable,’ specific opinion are very few. In reality, most people can be persuaded or convinced based on others’ actions and behaviors. The key takeaway is that consumer reviews, marketing campaigns, and any other network where humans can observe others’ behaviors can strategically convert undecided consumers to adopt certain behaviors in society.
Deloitte Ireland Consumer Review Online says that one-third of Irish consumers use online reviews for guidance before making a major purchasing decision, such as where to spend a vacation or which television to choose. Deloitte’s findings reinforce the findings of the Skype study – people very rarely know what they independently want, but are more likely to make a certain decision if that decision is common within a network. However, an interesting problem exists as information-sharing goes on in on-line networks. What if the information/observable behaviors consumers have the ability to observe are fabricated or bias? For example, it has been well known since the inception of online review-based social networking sites like Yelp and TripAdvisor as well as ecommerce platforms such as eBay, Amazon and Etsy that businesses and sellers target and intentionally deceive undecided online consumers as they make purchasing decisions by bombarding users with a slew of bogus feedback from phony customers. Some tactics include writing fake reviews raving about their own products or using botnets to generate automated reviews. For example, Amazon has sued more than 1,000 people who posted fake reviews in exchange for payment.
It is far too easy for a company armed with a multi-million dollar marketing division and thousands of employees to figure out subtle ways to influence the undecided consumer. As previously mentioned, once a certain threshold of people adopt a behavior, a cascade may occur. While the rapid spread of information and the widespread adoption of behaviors based on the behaviors of others can be a powerful source of positive change, we as a society need to take steps to ensure behaviors are not adopted under false pretenses or because of fabricated propaganda. Consumers should be aware that they themselves are largely uncertain when it comes to even their own purchasing decisions. Also, consumers should approach new information with a healthy level of skepticism and understand that businesses themselves can create information cascades; which is how opinions, fads, and political movements spread through society. If false or potentially harmful behaviors are easily observable and form cascade, the outcomes can be dangerous for politics, business, and consumers alike. Companies such as Amazon, Ebay, Yelp and TripAdvisor should also invest in the necessary security infrastructure to prevent false information about a product or service from spreading. New regulations would change the dynamic to online review/ecommerce platforms; it would be interesting to do an empirical study on consumer behavior/prices pre- and post- crackdown on falsified reviews or fake products auctioned off. Will consumers pay for a premium subscription, granting them access to expert, unbiased, verified, etc. types of reviews?
http://www.irishtimes.com/business/technology/online-reviews-what-you-read-isn-t-always-what-you-get-1.2868035