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A Theory of "Likes"

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  • Jean-Michel Benkert
  • Armin Schmutzler

Abstract

This paper investigates the value of recommendations for disseminating economic information, with a focus on frictions resulting from preference heterogeneity. We consider Bayesian expected-payoff maximizers who receive non-strategic recommendations by other consumers. We show by which channels a recommendation system influences consumer demand and welfare. Our analysis reveals how the welfare-maximizing design of a recommendation system may differ from what a profit-maximizing designer would choose to do.

Suggested Citation

  • Jean-Michel Benkert & Armin Schmutzler, 2024. "A Theory of "Likes"," Papers 2408.11362, arXiv.org, revised May 2025.
    • Handle: RePEc:arx:papers:2408.11362
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    File URL: http://arxiv.org/pdf/2408.11362
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