Demand effects of consumers' stated and revealed preferences

Knowledge of how consumers react to different quality signals is fundamental for understanding how markets work. We study the online market- place for Android apps where we compare the causal effects on demand from two quality related signals; other consumers' stated and revealed preferences toward an app. Our main result is that consumers are much more responsive to other consumers' revealed preferences, compared to others' stated preferences. A 10 percentile increase in displayed average rating only increases downloads by about 3 percent, while a 10 percentile increase in displayed number of downloads increases downloads by about 20 percent. -- peer effects ; observational learning ; stated preferences ; revealed preferences ; eWOM ; Google play ; Android apps ; regression discontinuity design ; instrumental variable analysis