Reporting Incentives in Online Feedback Forums: The Influence of Effort

The internet has made it possible for online feedback forums (or reputation mechanisms) to become an important channel for Word-of-mouth regarding products, services or other types of commercial interactions. Numerous empirical studies (Houser and Wooders, 2006; Melnik and Alm, 2002; Kalyanam and McIntyre, 2001; Dellarocas et al., 2006) show that buyers seriously consider online feedback when making purchasing decisions, and are willing to pay reputation premiums for products or services that have a good reputation. Recent analysis, however, raises important questions regarding the ability of existing forums to reflect the real quality of a product. In the absence of clear incentives, users with a moderate outlook will not bother to voice their opinions, which leads to an unrepresentative sample of reviews. For example, Hu et al. (2006); Admati and Pfleiderer (2000) show that Amazon ratings of books or CDs follow with great probability bi-modal, U-shaped distributions where most of the ratings are either very good, or very bad. Controlled experiments, on the other hand, reveal opinions on the same items that are normally distributed. Under these circumstances, using the arithmetic mean to predict quality (as most forums actually do) gives the typical user an estimator with high variance that is often false. Talwar et al. (2007) analyze other factors that contribute to the user’s decision of when and what feedback to submit to an online forum. They look at hotel reviews from TripAdvisor.com and correlate the numerical ratings with the textual comments left by the reviewers. Their results show that: