Just do it. Everyone else did.
Online ratings are one of the most trusted sources of consumer confidence in e-commerce decisions.
In the digital era, we are overwhelmed by the opinion of other people. We pick out restaurants based on what other people prefer; we browse books on Amazon with an eye to what other customers liked (or disliked); on momondo.com, we compare hotels and car rentals based on user ratings; on YouTube, we look to video’s thumbs-up/thumbs-down score to help determine if it’s worth our time; and we even make serious decisions about recruitment and freelancers based in part on the feedback of prior client.
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). 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 one of the most hardwired human attributes: herd behaviour. Herding is the tendency for individuals to mimic the actions (rational or irrational) of a larger group. We use the actions of others as a guide to sensible behaviour, while individually, most us would not necessarily make the same choice.
Why does herding happen?
There are a couple of reasons why herd behaviour happens. The first is the social pressure of conformity. You probably know from experience that this can be a powerful force. This is because most people are very sociable and have a natural desire to be accepted by a group, rather than be branded as an outcast. Therefore, following the group is an ideal way of becoming a member.
The second reason is the common rationale that it’s unlikely that such a large group could be wrong. After all, even if you are convinced that a particular idea or course or action is irrational or incorrect, you might still follow the herd, believing they know something that you don’t. This is especially prevalent in situations in which an individual has very little experience.
Finally, our herd instincts combine with our susceptibility to positive “social influence.” When we see that other people have appreciated a book, enjoyed a restaurant or delighted with a particular freelancer — and rewarded them with a high online rating — we feel the same positive feelings about the book, restaurant or freelancer and to likewise provide a similarly high online rating.
So what does it mean for your business?
Consider this experiment by Lev Muchnik, Sean J. Taylor and Sinan Aral: They asked test users to rate news articles and comments by voting them up or down based on how much they enjoyed them. They randomly manipulated the scores of comments with a single up or down vote and then measured the impact of these small manipulations on subsequent scores.
The results were alarming. The positive manipulations created a positive social influence bias that persisted over five months and that ultimately increased the comments’ final ratings by 25%. Negatively manipulated scores, meanwhile, were offset by a correction effect that neutralised the manipulation: Although viewers of negatively manipulated comments were more likely to vote negative (evidence of negative herding), they were even more likely to positively “correct” what they saw as an undeserved negative score.
This social influence bias snowballs into disproportionately high scores, creating a tendency toward positive ratings bubbles that helps to explain the online ratings bubbles disproportionately towards positive. E.g. the distributions of product ratings on Amazon.com include far more extreme positive (five-star) than negative (one-star or two-star) or generally positive (three-star or four-star) reviews. Trends toward positivity have also been observed in restaurant ratings and movie and book reviews on a variety of different websites.
You cheat, you win
The social influence bias combined with herd behaviour means that we tend to herd on positive opinions and remain skeptical of the negative ones.
In this light, consider a comparison between TripAdvisor and Expedia: While anyone can post a review on TripAdvisor, a consumer can only post a review of a hotel on Expedia if he or she actually booked at least one night at the hotel through the website. A study by Dina Mayzlin, Yaniv Dover and Judith Chevalier showed that hotels with a high incentive to submit fraudulent reviews (independent brands owned by single-unit owners) had a greater share of five-star reviews on TripAdvisor relative to Expedia than did hotels with a lower incentive to fake (franchise brands or chains, which benefit less from reviews and have a greater reputation risk from committing fraud).
Implications for decision-makers
The number one rule is: When choosing online freelancers and collaborators on sites such as Upwork, always consider taking positive online ratings with a grain of salt. While a healthy skepticism of positive ratings might cognitively correct for herding and social influence bias, such a correction may not be necessary for negative ratings.
In addition, it behooves managers to consider a few financial implications of all of this research regarding herding and ratings bubbles. For instance, herd behaviour was exhibited in the late 1990s as venture capitalists and private investors were frantically investing huge amounts of money into internet-related companies, even though most of these dotcoms did not (at the time) have financially sound business models. The driving force that seemed to compel these investors to sink their money into such an uncertain venture was the reassurance they got from seeing so many others do the same thing.
Beyond the scope of online ratings, if equity prices work the way positive ratings do, executives should be aware of how such herding dynamics could affect a company’s stock price. Herd behaviour, as the dotcom bubble illustrates, is usually not a very profitable investment strategy. Investors that employ a herd-mentality investment strategy constantly buy and sell their investment assets in pursuit of the newest and hottest investment trends at great transaction costs that eats away available profits.
In innovation processes, one of the main challenges of herding and social influence is that friends and co-workers fond of each other tend to be quicker to herd on positive ratings and to come to their friends’ rescue when those friends’ ideas are poorly rated. This implies that the structure of social networks helps guide the structure of ratings bubbles.
Many recent financial and business crises have herding and bubbles at their core. Understanding how herding and bubbles work – and remembering that particular choices favoured by the herd can easily become overvalued – is the first step toward averting their effects in a multitude of settings.
Did you enjoy the post?
Please let us know! And visit our website blog, Behavioural Strategy Group, for more posts on biases, irrational decision making and judgment fallacies.
Sources:
- https://www.investopedia.com/university/behavioral_finance/behavioral8.asp
- https://sloanreview.mit.edu/article/the-problem-with-online-ratings-2/
- https://behaviouralstrategy.com/2016/05/10/just-do-it-everyone-else-did/