Sunday, November 15, 2015

The Problem with Online Ratings

From the MIT Sloan Management Review, Sinan Aral shares research about the problem of relying on online ratings he writes:

The Problem: Our Herd Instincts 
In the digital age, we are inundated by other people’s opinions. We browse books on Amazon with awareness of how other customers liked (or disliked) a particular tome. On Expedia, we compare hotels based on user ratings. On YouTube, we can check out a video’s thumbs-up/thumbs-down score to help determine if it’s worth our time. We may even make serious decisions about medical professionals based in part on the feedback of prior patients.
 For the most part, we have faith in these ratings and view them as trustworthy. A 2012 Nielsen report surveying more than 28,000 Internet users in 56 countries found that online consumer reviews are the second most-trusted source of brand information (after recommendations from friends and family).1 According to the survey, more than two-thirds of global customers say they trust messages on these platforms — a 15% increase in four years.
 But this trust may be misplaced. The heart of the problem lies with our herd instincts — natural human impulses characterized by a lack of individual decision making — that cause us to think and act in the same way as other people around us.2
 On two different days in April 2013, for instance, the price of gold fell more than it had in three decades. At the time, market watchers offered all sorts of justifications as to why the metal’s price plunged so precipitously, but none of them was particularly compelling. “It is hard to escape the conclusion that gold investors sold off because other investors were selling — in other words, herd instinct kicked in,” wrote Sarah Gordon of the Financial Times.3
 Social Influence Bias
 When it comes to online ratings, our herd instincts combine with our susceptibility to positive “social influence.”4 When we see that other people have appreciated a certain book, enjoyed a hotel or restaurant or liked a particular doctor — and rewarded them with a high online rating — this can cause us to feel the same positive feelings about the book, hotel, restaurant or doctor and to likewise provide a similarly high online rating.
Read the full story at The Problem with OnLine Ratings