Do I Follow My Friends or the Crowd? Information Cascades in Online Movie Ratings

Online product review as a form of online Word of Mouth (WOM) and User-Generated Content (UGC) has attracted much attention recently. While there are many studies relating online reviews and product sales, the interesting and important problems regarding user review generation processes have been largely ignored. This study analyzes how online movie user ratings are generated through a complex interrelationship between product information, marketing effort, and social influences. In particular, we examine the effects of comparable observational learning from the crowd or friends on user ratings. This study exploits sequential user movie ratings in an online community with user and movie level information, and constructs plausible latent variables for users’ perceived movie quality and the heterogeneity at movie and user levels. Our analysis indicates that, on average, higher predecessors’ ratings increase the likelihood of a subsequent user providing a high rating; in other words, herding occurs. On the other hand, the degree of herding behavior by prior friend ratings becomes relatively smaller. More interestingly, the impact of predecessors’ ratings becomes weaker as the volume of friend ratings increases. This study contributes to the understanding of how social imitation and learning affect user rating generation and how online social interactions moderate inefficiency in product quality information created by online users.