From Amazon stars to reviews on Trip Advisor, we rely heavily on websites for reviews of services and products before purchasing them. Are they reliable? Ray Fisman wrote:

• The benefits from gaming the review system are potentially lucrative. An extra half star on Yelp can boost revenue by up to 9%.
• Smaller businesses gain more from a half-star review than bigger ones because they’re less well known. Everybody knows what it will be like to eat at a Pizza Hut. Therefore smaller businesses have a greater incentive to game the review system.
• Smaller businesses also have a bigger incentive to post fake reviews because for them the repercussions are less serious. If a large company is caught engaging in such practices then the resulting press coverage would affect their brand across any other stores or franchises that they might have.
• Research suggests that not only are small business owners likely to post fake reviews which rate their businesses highly, they are also more likely to post negative reviews for nearby competitors.
• Evidence suggest that many anonymous book reviews on Amazon also come from the authors and the publishers themselves.
• Technology might be the solution: algorithms can potentially detect if a review is genuine or not.

To read more including the what economists describe as the “cheap-talk” problem, the virtues of crowdsourcing, links to research and papers, how one fake review detection algorithm works, how the ratings of TripAdvisor compare to Expedia, the limits of open-source, and various examples of companies caught posting fake reviews, click here.

Source: Slate