Supervised Social Learning
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 of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
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