Economic recommendation with surplus maximization

Yongfeng Zhang, Qi Zhao, Yi Zhang, Daniel Friedman, Min Zhang, Yiqun Liu and Shaoping Ma

Discussion Papers, Research Professorship Market Design: Theory and Pragmatics from WZB Berlin Social Science Center

Abstract: A prime function of many major World Wide Web applications is Online Service Allocation (OSA), the function of matching individual consumers with particular services/goods (which may include loans or jobs as well as products) each with its own producer. In the applications of interest, consumers are free to choose, so OSA usually takes the form of personalized recommendation or search in practice. The performance metrics of recommender and search systems currently tend to focus on just one side of the match, in some cases the consumers (e.g. satisfaction) and in other cases the producers (e.g., profit). However, a sustainable OSA platform needs benefit both consumers and producers; otherwise the neglected party eventually may stop using it. In this paper, we show how to adapt economists' traditional idea of maximizing total surplus (the sum of consumer net benefit and producer profit) to the heterogeneous world of online service allocation, in an effort to promote the web intelligence for social good in online eco-systems. Modifications of traditional personalized recommendation algorithms enable us to apply Total Surplus Maximization (TSM) to three very different types of real-world tasks - e-commerce, P2P lending and freelancing. The results for all three tasks suggest that TSM compares very favorably to currently popular approaches, to the benefit of both producers and consumers.

Keywords: Total Surplus Maximization; Online Service Allocation; Computational Economics; Recommendation Systems; Web-based Services (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-ger and nep-mkt
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Citations: View citations in EconPapers (3)

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