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Economic recommendation with surplus maximization

Author

Listed:
  • Zhang, Yongfeng
  • Zhao, Qi
  • Zhang, Yi
  • Friedman, Daniel
  • Zhang, Min
  • Liu, Yiqun
  • Ma, Shaoping

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.

Suggested Citation

  • Zhang, Yongfeng & Zhao, Qi & Zhang, Yi & Friedman, Daniel & Zhang, Min & Liu, Yiqun & Ma, Shaoping, 2016. "Economic recommendation with surplus maximization," Discussion Papers, Research Professorship Market Design: Theory and Pragmatics SP II 2016-502, WZB Berlin Social Science Center.
  • Handle: RePEc:zbw:wzbmdn:spii2016502
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    References listed on IDEAS

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    1. Borgers, Tilman & Krahmer, Daniel & Strausz, Roland, 2015. "An Introduction to the Theory of Mechanism Design," OUP Catalogue, Oxford University Press, number 9780199734023.
    2. Eric S. Maskin, 2008. "Mechanism Design: How to Implement Social Goals," American Economic Review, American Economic Association, vol. 98(3), pages 567-576, June.
    3. Kaplan, Andreas M. & Haenlein, Michael, 2010. "Users of the world, unite! The challenges and opportunities of Social Media," Business Horizons, Elsevier, vol. 53(1), pages 59-68, January.
    4. Currie, John Martin & Murphy, John A & Schmitz, Andrew, 1971. "The Concept of Economic Surplus and its Use in Economic Analysis," Economic Journal, Royal Economic Society, vol. 81(324), pages 741-799, December.
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    1. repec:eee:agiwat:v:192:y:2017:i:c:p:170-179 is not listed on IDEAS

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    Keywords

    Total Surplus Maximization; Online Service Allocation; Computational Economics; Recommendation Systems; Web-based Services;

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