Federal regulators have made a concerted effort to crack down on fake reviews, posted by people who are paid to express a positive opinion about a product or service. Now, the Transparency Company, a firm that provides review verification technology, has calculated the cost to consumers who make purchase decisions based on bogus reviews.
Its report, "The High Cost of Review Fraud: An Economic Analysis of Consumer Harm," says fraudulent reviews inflict over $300 billion in annual consumer harm. Millions of consumers are misled into selecting unreliable service providers based on deceptive online reviews, undermining trust in digital platforms and disadvantaging ethical businesses.
"The financial impact of these fraudulent practices is staggering, and we hope this report encourages both consumers and businesses to be more vigilant," said Dr. Roberto Cavazos, Clinical Associate Professor at the University of North Texas.
The report found that nearly 14% of online reviews in critical sectors are highly suspicious or likely fake. This deception leads to an estimated $2,385 in economic harm per U.S. household annually. Furthermore, the proliferation of AI-generated reviews, which have grown by 80% month over month since June 2023, makes the problem worse.
Greg Sterling, a co-founder of Near Media and an expert in local digital marketing, highlighted the distortion caused by fake reviews.
"Honest businesses are at a disadvantage, and consumers are increasingly misled,” he said. It's critical that platforms and stakeholders work together to mitigate this issue."
Analyzed millions of reviews
The Transparency Company's algorithms, which analyzed over 73 million reviews, reveal how fake reviews skew consumer choices. In the home services sector, for instance, unethical providers with inflated reviews may charge exorbitant fees for subpar work, leaving consumers with additional repair costs.
Similarly, in the medical field, patients might be misled into selecting practitioners with falsified reputations, potentially resulting in harmful or unnecessary treatments.
In June 2023, The Federal Trade Commission proposed a new rule to stop marketers from using bogus review and endorsement practices such as using fake reviews, suppressing honest negative reviews, and paying for positive reviews, which deceive consumers looking for real feedback on a product or service and undercut honest businesses.
In its notice of proposed rulemaking, the FTC cited examples of clearly deceptive practices involving consumer reviews and testimonials from its past cases and noted the widespread emergence of generative AI, which is likely to make it easier for bad actors to write fake reviews.
The rule was finalized in August.