Ratings with Heterogeneous Preferences

Ratings with Heterogeneous Preferences with Jonathan Lafky
We examine how ratings are interpreted in the presence of heterogeneous preferences among both raters and consumers. Raters with altruistic motives should rate for the benefit of future consumers, however an ambiguity arises when preferences are heterogeneous. Multiple equilibria exist in which ratings reflect either the preferences of raters or the preferences of future consumers. In an online experiment, we examine how ratings are selected by raters and interpreted by consumers, and how two types of information influence equilibrium selection. We show how both raters and consumers update their evaluation of what a rating represents in each environment, doing so in similar ways.