Information Cascades and the Online Review System
In class, we discussed the occurrence of an information cascade, in which the information a person can infer from the choices of others may be more powerful than said person’s private information. When these decisions/events occur sequentially, people watch the actions of earlier individuals and infer something about what the earlier people know, based on their actions. In this instance, it makes sense to copy the actions of those before you, ignoring your private opinion.
This behavior is exemplified in the online review process when individuals look to other online reviewers for an indication of the quality of a business or service. Some follow the word of others blindly, completely trusting the company’s average star rating or the first few glowing reviews, rather than forming a personal opinion or receiving a recommendation from trusted friends and family. According to the Local Consumer Review Survey for 2017, 68% of US consumers said that positive reviews made them more likely to use a business, 73% of consumers said positive reviews make them trust a local business more, and 85% of consumers trust online reviews as much as personal recommendations. This is problematic for the consumer market because businesses are starting to use clever tactics to gain a more positive image without actually increasing the quality of their products/services. According to Time magazine, about 30% of online reviews for certain products are fake, sites such as Freelancer.com welcome businesses to offer menial-paying jobs for writing fake reviews, and fake review writers at Fiverr.com write glowing, positive reviews for companies for $5 each. Companies also give free products to reviewers or have employees review the company, to further increase their online rating/standing in comparison to competitors. With company ratings increasing and quality remaining fairly unchanged, the online review system is becoming less trustworthy. If individuals follow these information cascades, they may be led to follow misleading or even fake information and ultimately experience unsatisfactory results.
https://www.brightlocal.com/learn/local-consumer-review-survey/
http://business.time.com/2012/02/03/9-reasons-why-you-shouldnt-trust-online-reviews/