NBER Working Papers by Michael Luca

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Working Papers

April 2015Is No News (Perceived as) Bad News? An Experimental Investigation of Information Disclosure
with Ginger Zhe Jin, Daniel Martin: w21099
A central prediction of information economics is that market forces can lead businesses to voluntarily provide information about the quality of their products, yet little voluntary disclosure is observed in the field. In this paper, we demonstrate that the inconsistency between theory and reality is driven by a fundamental failure in consumer inferences when sellers withhold information. Using a series of laboratory experiments, we implement a simple disclosure game in which senders can verifiably report quality to receivers. We find that senders disclose less often than equilibrium would predict. Receivers are not sufficiently skeptical about undisclosed information – they underestimate the extent to which no news is bad news. Senders generally take advantage of receiver mistakes. We find...
November 2012Optimal Aggregation of Consumer Ratings: An Application to
with Weijia Dai, Ginger Z. Jin, Jungmin Lee: w18567
Consumer review websites leverage the wisdom of the crowd, with each product being reviewed many times (some with more than 1,000 reviews). Because of this, the way in which information is aggregated is a central decision faced by consumer review websites. Given a set of reviews, what is the optimal way to construct an average rating? We offer a structural approach to answering this question, allowing for (1) reviewers to vary in stringency and accuracy, (2) reviewers to be influenced by existing reviews, and (3) product quality to change over time. Applying this approach to restaurant reviews from, we construct optimal ratings for all restaurants and compare them to the arithmetic averages displayed by Yelp. Depending on how we interpret the downward trend of reviews within a r...

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