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Supervised Social Learning

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  • Johannes Horner

    (Yale University)

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.

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  • Johannes Horner, 2013. "Supervised Social Learning," 2013 Meeting Papers 881, Society for Economic Dynamics.
    • Handle: RePEc:red:sed013:881
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    References listed on IDEAS

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    1. Gershkov, Alex & Szentes, Balázs, 2009. "Optimal voting schemes with costly information acquisition," Journal of Economic Theory, Elsevier, vol. 144(1), pages 36-68, January.
    2. Robert J. Aumann, 1995. "Repeated Games with Incomplete Information," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011476, December.
    3. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
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