Optimal Grading Scales for Enhancing Product Evaluation by Infomediaries

Abstract

Infomediaries, such as movie critics, play a crucial role in evaluating product quality and providing valuable information to potential consumers. Their use of discrete grades, such as thumbs-up and thumbs-down, helps consumers make informed purchasing decisions. In this study, we aim to investigate how the grading process can be improved, addressing research questions such as determining quality cutoffs for each grade, identifying the optimal number of grades to use, exploring grading strategies for goals beyond informativeness (e.g., maximizing reviewer's traffic), and designing grading systems that encourage producers to enhance product quality. Through the use of an analytical model, we demonstrate that the optimal grade cutoffs are contingent upon the distributions of product quality and consumer taste. Additionally, we find that the resulting grading scale may exhibit unequal intervals. Surprisingly, our findings indicate that as few as five grades can approach optimality in terms of consumer welfare. Furthermore, we reveal that grading should be made more challenging when producers have the ability to invest in quality improvement. These insights shed light on the design of grading scales for reporting quality, offering practical guidance to infomediaries and industry stakeholders. By understanding the interplay between product quality, consumer preferences, and grading strategies, we can enhance the effectiveness and relevance of grading systems, ultimately empowering consumers to make more informed decisions.   Received: 12 January 2023 / Accepted: 16 March 2023 / Published: 20 March 2023