How Does the Variance of Product Ratings Matter?

  • Authors:

  • Monic Sun

  • Affiliations:

  • Graduate School of Business, Stanford University, Stanford, California 94305/ and Marshall School of Business, University of Southern California, Los Angeles, California 90089

  • Venue:
  • Management Science
  • Year:
  • 2012

Quantified Score

Hi-index 0.01

Visualization

Abstract

This paper examines the informational role of product ratings. We build a theoretical model in which ratings can help consumers figure out how much they would enjoy the product. In our model, a high average rating indicates a high product quality, whereas a high variance of ratings is associated with a niche product, one that some consumers love and others hate. Based on its informational role, a higher variance would correspond to a higher subsequent demand if and only if the average rating is low. We find empirical evidence that is consistent with the theoretical predictions with book data from Amazon.com and BN.com. A higher standard deviation of ratings on Amazon improves a book's relative sales rank when the average rating is lower than 4.1 stars, which is true for 35% of all the books in our sample. This paper was accepted by Pradeep Chintagunta, marketing.