The Informational Role of Online Recommendations: Evidence from a Field Experiment

TL;DR

This study uses a field experiment to analyze how online recommendations influence consumer choices, highlighting their role in shaping beliefs and consumption, especially among less experienced users.

Contribution

It provides causal evidence on the effects of online recommendations and decomposes their influence into expanding consideration sets and informing about match value.

Findings

Recommendations significantly influence consumer beliefs and choices.

Informational effects are stronger than consideration set expansion.

Less experienced consumers are more affected by recommendations.

Abstract

We conduct a field experiment on a movie-recommendation platform to investigate whether and how online recommendations influence consumption choices. Using a within-subjects design, our experiment measures the causal effect of recommendations on consumption and decomposes the relative importance of two economic mechanisms: expanding consumers' consideration sets and providing information about their idiosyncratic match value. We find that the informational component exerts a stronger influence - recommendations shape consumer beliefs, which in turn drive consumption, particularly among less experienced consumers. Our findings and experimental design provide valuable insights for the economic evaluation and optimisation of online recommendation systems.