A Theory of "Likes"
General Economics
2025-05-02 v3 Economics
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. We show by which channels a recommendation system influences consumer demand and welfare. Our analysis reveals how the welfare-maximizing design of a recommendation system may differ from what a profit-maximizing designer would choose to do.
Keywords
Cite
@article{arxiv.2408.11362,
title = {A Theory of "Likes"},
author = {Jean-Michel Benkert and Armin Schmutzler},
journal= {arXiv preprint arXiv:2408.11362},
year = {2025}
}