The Perils of Online Manipulation

Online platforms are prone to abuse and manipulations from strategic parties. For example, social media and review websites suffer from sentiment manipulations, manifested in the form of opinion spam and fake reviews. The consequence of such manipulations is the deterioration of information quality as well as loss in consumer welfare. Applying the economic concept of rational expectation equilibrium (REE), we explore the impact of manipulation on consumer welfare in a Twitter-like environment. We argue that the REE outcome can be decomposed into a firm-centric effect and a rational expectation effect, and the relative strengths of these effects determine the final level of manipulation. Our preliminary empirical study on movie tweets sheds light on the reliability of sentiment analysis, and contributes to our understanding of strategic manipulation. We argue that appropriate verification strategies increase the cost to manipulate, and can consequently dissuade firms from engaging in strategic manipulations.