A flawless product does not exist, people are suspicious if they see no bad reviews, and using game theory, the researchers analyzed how negative reviews affect sales. The model had two sets of participants: sellers, who know the true quality of the products they are selling and can selectively publish reviews about it, and buyers, who do not know a product's quality and can be categorized as either 'naïve' or 'rational'.
Rational buyers use all available information to determine the quality of a product, while naïve buyers tend to take product reviews at face value and do not make any further inference. Their thinking goes that there are both naïve and rational consumers in the market and while Good reviews are perceived positively by everyone, Bad reviews are only bad for the naïve consumers, but for rational consumers actually increase their confidence in the quality of a product.
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Why? The authors say every bad review weakens sales among naïve consumers so only a seller of a high quality product will be confident enough to publish it; they believe that sales among rational consumers will compensate for any losses among naïve consumers. Thus, bad reviews become a positive signal to rational consumers, and, by attracting more rational consumers, sellers boost sales.
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