Reviews, Ratings and Trust
Information Asymmetry and the Lemons Problem
Reviews reduce the problem that sellers know more than buyers, which can otherwise cause bad products to crowd out good ones.
A classic economic problem, updated.
The gap
Sellers know product quality; buyers guess.
Akerlof
George Akerlof showed that this can shrink markets.
Reviews as a fix
Buyer feedback is a form of shared information.
Limits
Reviews can be biased, incomplete or manipulated.
A hidden defect
A used phone's battery problem is revealed in reviews of the seller.
Assuming reviews fully solve the information gap
Manipulation weakens them.
Key takeaways
- Sellers know more than buyers.
- Reviews share information.
- They partly solve lemons problems.
- They have limits.
No recording for this one yet - EconReader can read it aloud for you.