Researchers exploit a crack in the data to answer the question of just how much Yelp reviews affect consumer behavior.
Over the past half-decade, Yelp has become the king of the crowd-sourced-reviews hill, with some 27 million reviews and an average of 70 million unique visitors per month. But despite its prominence, its effects have been difficult for researchers to pin down. How much do Yelp ratings affect a restaurant's business?
Anecdotal evidence -- the great tailor whose positive Yelp reviews led to the business's expansion -- is common, but sussing out a more widespread effect is hard. It's a chicken-or-the-egg problem. Did a restaurant fail because its reviews were bad or because its food was bad, garnering negative reviews? Did another succeed because of its winning food and service, or because positive reviews brought customers to its doors? How can you ever know?
In a new paper in The Economic Journal, Michael Anderson and Jeremy Magruder of Berkeley demonstrate a tool for cracking that nut wide open. They find that the difference of a half-star in a Yelp rating can make a huge difference for the rate at which a restaurant is booked up with reservations on a given night. How do they know that they are seeing the effect of the rating and not the quality of the restaurant itself? They use a statistical tool known as "regression discontinuity."