Do I Follow My Friends or the Crowd? Information Cascades in Online Movie Rating

Online product ratings are widely available on the Internet and are known to influence prospective buyers. An emerging literature has started to look at how ratings are generated and in particular how they are influenced by prior ratings. We study the social influence of prior ratings and, in particular, investigate any differential impact of prior ratings by strangers (“crowd”) versus friends. We find evidence of both herding and differentiation behavior wherein users’ ratings are influenced positively or negatively by prior ratings depending on movie popularity. This finding raises questions about the reliability of ratings as unbiased indicators of quality. Interestingly, friends’ ratings always induce herding but its effect is weaker than that of the crowd for popular movies, and the presence of social networking reduces the likelihood of herding or differentiation on prior ratings by the crowd. Finally, we also find that an increase in the number of friends who can potentially observe a user’s rating (“audience size”) has a positive impact on ratings.