Supervised Social Learning

Johannes Hörner

No 881, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: This paper examines the optimal design of recommendation systems. Given the option value of experimentation, short-run consumers' incentives to experiment are too low; the social planner can encourage experimentation by providing selective information to the consumers, in the form of a recommendation. Under the optimal scheme, we show that the amount of experimentation is optimal, but experimentation occurs too slowly. Moreover, the rate of experimentation increases over an initial phase. Whether recommendations should be coarse or precise depends on the designer's information about the consumers' idiosyncratic characteristics.

Date: 2013
New Economics Papers: this item is included in nep-cta
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