Recommendations with Costly Verification
A recommender faces consumers who can verify recommendations, but differ in their attention costs or in the salience of their choice of adoption. We characterize the conditions under which a technology that increases transparency by lowering the cost of verifying a product's quality will increase or decrease false recommendations. Without commitment, reducing verification costs never increases false recommendations, but when the recommender can commit to a policy, transparency can worsen both the quality of recommendations and consumer welfare. The necessary and sufficient condition is that the log-elasticity of the distribution of consumer cost types is decreasing. It can hold when the distribution is sufficiently fat-tailed, or when it mixes sophisticated and naive consumers. Our results can be applied to platform-recommended listings, security ratings, and audits.