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Treatment Allocation with Strategic Agents

Author

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  • Evan Munro

    (Graduate School of Business, Stanford University, Stanford, California 94305)

Abstract

There is increasing interest in allocating treatments based on observed individual characteristics: examples include targeted marketing, individualized credit offers, and heterogeneous pricing. Treatment personalization introduces incentives for individuals to modify their behavior to obtain a better treatment. Strategic behavior shifts the joint distribution of covariates and potential outcomes. The optimal rule without strategic behavior allocates treatments only to those with a positive conditional average treatment effect. With strategic behavior, we show that the optimal rule can involve randomization, allocating treatments with less than 100% probability even to those who respond positively on average to the treatment. We propose a sequential experiment based on Bayesian optimization that converges to the optimal treatment rule without parametric assumptions on individual strategic behavior.

Suggested Citation

  • Evan Munro, 2025. "Treatment Allocation with Strategic Agents," Management Science, INFORMS, vol. 71(1), pages 123-145, January.
    • Handle: RePEc:inm:ormnsc:v:71:y:2025:i:1:p:123-145
    DOI: 10.1287/mnsc.2022.01629
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