Economists at University of California, Berkeley link Yelp reviews to the success of restaurants

Writing in the Economic Journal, UC Berkeley economists Michael Anderson and Jeremy Magruder found that a restaurant with a rating improved by just half star – on a scale of 1 to 5 – was much more likely to be full at peak dining times.

Writing in the Economic Journal, UC Berkeley economists Michael Anderson and Jeremy Magruder found that a restaurant with a rating improved by just half star – on a scale of 1 to 5 – was much more likely to be full at peak dining times. The pair of professors focused on the effects of positive ratings on 300 San Francisco restaurants that were then collated to form a star system on Yelp.com. An extra half-star rating caused a restaurant’s 7 p.m. bookings to sell out on 30% to 49% of the evenings it was open for business.

The economists write: “The findings of this study demonstrate that – although social media sites and forums may not generate the financial returns for which investors yearn – they play an increasingly important role in how consumers judge the quality of goods and services.”

The study collected reviews and daily reservation availability for 328 restaurants in San Francisco. It found that moving from 3 stars to 3.5 stars increased a restaurant’s chance of selling out during prime dining times from 13% to 34%. Moving from 3.5 stars to 4 stars increased the chance of selling out during prime dining times by 19 percentage points.

The pair conclude that changes in consumer preferences “occur even though restaurant quality is held constant. This study demonstrates that these reviews have become a salient factor in consumer decisions.”

When alternative reviews are not available like in the case of a new restaurant, the power of Yelp reviews is even more profound. This potentially leads to fake reviews to boost bookings. While Yelp has algorithms and procedures to minimize bogus reviews, there is no fool-proof way to prevent it. With the popularity of GPS enabled mobile phones, perhaps one solution is to give a weighted score to those who review a business after checking in with their mobile devices.