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A Theory of Recommendations

Author

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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. The paper provides conditions under which different consumer types accept these recommendations. Moreover, we assess the overall value of a recommendation system and the determinants of that value. Our analysis highlights the importance of disentangling objective information from subjective preferences when designing value-maximizing recommendation systems.

Suggested Citation

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

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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