Removing Sludge – Does Lowering Barriers To Rate Improve The Informativeness of Crowd Consensus?

70 Pages Posted: 18 Nov 2021 Last revised: 17 Oct 2023

See all articles by Oliver Hegers

Oliver Hegers

University of Amsterdam

Matthias D. Mahlendorf

Frankfurt School of Finance & Management

Fan Wu

Frankfurt School of Finance & Management - Accounting Department

Date Written: September 1, 2021

Abstract

We investigate how lowering barriers to rate affects the informativeness of the rating consensus – a crowd-sourced performance measure. In 2020, Amazon.com introduced a new one-tap rating system for verified users, whereas before, a written text review was required to rate a product. We document that the policy change solicits substantially more ratings from platform users. The rating averages increase across all product categories.
Moreover, we find evidence consistent with authentic ratings crowding out purchased fake ratings and rendering rating manipulation conducted by sellers less effective than before. Overall, ratings on Amazon seem to become more informative, as evidenced by higher sensitivity of future sales to ratings, and by fewer customer complaints about misleading ratings. Taken together, this paper provides the first field evidence that the removal of “sludge,” which imposes cognitive costs on actors’ decision-making, can encourage their prosocial activities and improve the surplus of a crowd-based reputation system.

Keywords: Wisdom of crowds, sludge, non-financial information, informativeness, rating management, Amazon.com

JEL Classification: D20, D82, M10, M31, M41

Suggested Citation

Hegers, Oliver and Mahlendorf, Matthias D. and Wu, Fan, Removing Sludge – Does Lowering Barriers To Rate Improve The Informativeness of Crowd Consensus? (September 1, 2021). Available at SSRN: https://ssrn.com/abstract=3965749 or http://dx.doi.org/10.2139/ssrn.3965749

Oliver Hegers (Contact Author)

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Matthias D. Mahlendorf

Frankfurt School of Finance & Management ( email )

Adickesallee 34
Frankfurt, DE RLP 60322
Germany

Fan Wu

Frankfurt School of Finance & Management - Accounting Department ( email )

Sonnemannstraße 9-11
Frankfurt
Germany

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