Thursday, April 04, 2019
4:00 PM - 5:00 PM
Baxter B125

Finance Seminar

Recommendations with Feedback
Gustavo Manso, Professor of Finance and William A. and Betty H. Hasler Chair in New Enterprise Development, Haas School of Business, UC Berkeley,

Abstract: We investigate the strategic role of a recommender who cares about accuracy and whose recommendations influence product quality. In the presence of such feedback effects, recommendations have a self-fulling property: the recommendation agent can select any firm which will end up being the firm with the best quality. Recommendations can lead to significant inefficiencies which include: i) a lack of incentive to acquire valuable information, ii) a status quo bias, and iii) the avoidance of risky innovations. Direct monetary payments from firms may work in mitigating these inefficiencies, while competition between recommenders and monetary transfers from consumers are ineffective.

Click here to view the full paper, written with Ganesh Iyer.

Finance Seminars at Caltech are funded through the generous support of The Ronald and Maxine Linde Institute of Economic and Management Sciences (lindeinstitute.caltech.edu).

For more information, please contact Sabrina Hameister by phone at 626-395-4228 or by email at sabrina@hss.caltech.edu