Recovering the Actual Impact of Word-of-Mouth and Biases in Suppliers’ Expectations Based on Extreme Behaviors and Information Symmetry

Abstract

In this study, we suggest a framework to investigate and recover the actual impact of extreme online ratings and to understand biases in suppliers’ expectations about box office sales, based on the nature of extreme behaviors, willingness to rate and skepticism, and information symmetry in the motion picture industry. The suggested framework deals with the following three issues: first, the moderating effect of the decay pattern of the WOM effect, second, the adjustment for the actual impact of extreme ratings, and finally, differences between suppliers’ and moviegoers’ responses. We apply the suggested framework to the Korean movie data from 2006 to 2009 for an empirical example. The empirical result strongly supports our expectations, which is based on previous behavioral research.