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Noisy signals: do ratings volatility depend on the length of the consumption span?

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  • David Boto-Garc a
  • Veronica Leoni

Abstract

This paper investigates the informational content of online reviews. For the case of hotels, we model how the length of the stay shapes the variance of review scores. Grounded on violations of temporal monotonicity, errors in recall and hedonic adaptation theories, we first present a characterization of how the consumption span affects the non-deterministic component of consumer satisfaction. Next, we conduct an empirical analysis using more than 525,000 individual reviews from Booking.com in 5 major European cities. Under a heteroskedastic framework, we document that individual ratings volatility decreases with the length of the stay. This implies that online ratings from short stayers (short consumption episodes) are noisy signals of the underlying hotel quality. Furthermore, we show that greater volatility in hotel ratings translates into a lower share of useful reviews for subsequent consumers. Our findings offer relevant insights for platform design operators about the sources of ratings volatility and how this affects social learning.

Suggested Citation

  • David Boto-Garc a & Veronica Leoni, 2023. "Noisy signals: do ratings volatility depend on the length of the consumption span?," Working Papers wp1183, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:wp1183
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    References listed on IDEAS

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    6. Daron Acemoglu & Ali Makhdoumi & Azarakhsh Malekian & Asuman Ozdaglar, 2022. "Learning From Reviews: The Selection Effect and the Speed of Learning," Econometrica, Econometric Society, vol. 90(6), pages 2857-2899, November.
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    10. Leif Brandes & Yaniv Dover, 2022. "Offline Context Affects Online Reviews: The Effect of Post-Consumption Weather [Mobile Ad Effectiveness: Hyper-Contextual Targeting with Crowdedness]," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 49(4), pages 595-615.
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    Cited by:

    1. Paolo Figini & Veronica Leoni & Laura Vici, 2023. "And suddenly, the rain! How surprises shape experienced utility," Working Papers wp1185, Dipartimento Scienze Economiche, Universita' di Bologna.

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • Z30 - Other Special Topics - - Tourism Economics - - - General

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