From Conversations to Mechanisms: Aligning Advertiser Incentives in AI-Powered Product Recommendations

Dirk Bergemann, Marek Bojko, Paul DŸtting, Renato Paes Leme, Haifeng Xu and Song Zuo
Additional contact information
Dirk Bergemann: Department of Economics, Yale University
Marek Bojko: Department of Economics, Yale University
Paul DŸtting: Google Research
Renato Paes Leme: Google Research
Haifeng Xu: Department of Computer Science, University of Chicago and Google Research
Song Zuo: Google Research

No 2513, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We study the design of efficient dynamic recommendation systems, such as AI shopping assistants, in which a platform interacts with a user over multiple rounds to identify the most suitable product among those offered by advertisers. Advertisers have multi-dimensional private information: their private value from a purchase and private information about the user's preferences. In each round, the platform displays recommendations; the user learns product characteristics of the shown items and then chooses whether to purchase, exit without purchasing, or submit a new query. These actions generate a stream of feedbackÑpurchase, exit, and follow-up queriesÑthat is informative about the user's preferences and can be used both to refine future recommendations and to design contingent transfers. We introduce a class of data-driven dynamic team mechanisms that condition payments on realized user feedback. Our main result shows that data-driven dynamic team mechanisms achieve periodic ex-post implementation of the efficient allocation rule. We then develop variants that guarantee participation and deliver budget surplus, and provide conditions under which these properties can be jointly attained.

Pages: 70 pages
Date: 2026-04-03
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