The damages of negative information: illustration from two markets

Abstract

We measured the damage done by negative information to a crowdfunding campaign and to the sale of products and services by performing three different studies. In the first study, we presented 1055 participants with positive and negative information about a crowdfunding campaign using credible and less credible sources of information. Although the participants could distinguish between the credible and less credible sources of information, they made similar decisions in both cases, regardless of whether the information was negative or positive, implying the irrelevance of credibility of the information. Further findings indicate that it might be possible to rectify the damage done by the negative information, but it is easier to do so when the information is from a less credible source. In the other two studies, we measured the extent of the damage of negative information on several products and services. We find that the extent of the damage is positively correlated with the amount of negative information. Furthermore, services suffer more than products from such negative information. Finally and consistent with our findings in the first study, it is possible to rectify the damage to some extent. The findings are important in light of recent phenomena such as shaming and fake news. The contribution of the studies is both practical and theoretical as it expands various research fields such as: (1) Behavioral economics, Applied economics and Marketing; (2) Communication; (3) Decision making processes; (4) Social psychology.