While online product reviews are useful for learning about products, and the average rating is used to infer product quality, we identify two self-selection biases that render the average rating a poor proxy for product quality. This is because consumers with extreme (either positive or negative) views are more likely to write their reviews compared to consumers with more moderate reviews, resulting in suppression of moderate ratings. Also, consumers who are positively predisposed toward a product are more likely to purchase a product and write a (positive) review, thus inflating the average rating. We show that these two self-selection biases decrease consumer surplus by rendering the average rating a biased estimator of product quality. This study suggests the need for overcoming these biases in online product reviews to allow consumers to make sound purchasing decisions.
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