The Consequences of Status Loss on the Evaluation of Market Actors

Abstract

How do status shocks affect social evaluations? Prior work shows that a positive status shock, such as a major award, may enlarge the audience of evaluators and lead to lower average evaluations. We have however limited understanding of the effect a sudden status downgrade may have on evaluations. To make progress on this question, we develop theories linking status shocks and social evaluations. We argue that status shocks shift evaluators’ expectations and change the comparison set used by evaluators. We test our arguments in the setting of Michelin Star restaurants in France. We find that restaurants receive on average more positive evaluations on TripAdvisor after being downgraded by the Michelin guide. Their evaluating audience decreases in size and changes in composition. Our results support the view that negative shocks not only alter the audience but also lower evaluators’ expectations and change the comparison set, resulting in an unexpected increase in average evaluations.