User-Generated Star Ratings Are Not Inherently Comparable: How Star Ratings Structure Leads to Poor Choices
Abstract
User-generated ratings — often elicited and presented as “star ratings” — have become a ubiquitous feature of the online consumer experience. While most research agrees that these user-generated ratings influence individual consumer decisions and overall consumer demand, there is less consensus as to whether user- generated ratings help consumers make better, welfare-enhancing decisions. In this manuscript, we expound on an intrinsic problem with the use of user-generated ratings in product choice decisions. Specifically, product ratings are typically given in an isolated (non-comparative) context, but are typically used in a comparative context, where relative differences in ratings may not reflect relative differences in quality. We provide a simple empirical demonstration of how this structural misalignment can lead consumers to choose suboptimal products and, ultimately, yield reduced consumer welfare.