Information Cascades and Online Rating Games

TL;DR

This paper models online ratings using two parameters—restaurant quality and customer intuition accuracy—and finds that ratings are often inaccurate due to variability in customer judgment quality.

Contribution

It introduces a mathematical model linking online ratings to customer perception accuracy and analyzes how this affects rating reliability.

Findings

Ratings are often inaccurate due to low or high customer intuition accuracy.

Mathematical analysis reveals the conditions under which ratings become unreliable.

Simulations support the theoretical findings about rating accuracy issues.

Abstract

Through mathematical analysis and simulations, online ratings and their impact on businesses are characterized through two parameters: an inherent and objective restaurant quality factor, and the accuracy of customers' gut feeling about a business. Within this model, it is found that online ratings are seldom accurate mainly because of the low or high accuracy in customers' gut feelings.