Effects of Online Recommendations on Consumers’ Willingness to Pay

Information Systems Research, Forthcoming

Kelley School of Business Research Paper No. 17-45

41 Pages Posted: 8 Jun 2017

See all articles by Gediminas Adomavicius

Gediminas Adomavicius

University of Minnesota - Twin Cities - Carlson School of Management

Jesse Bockstedt

University of Arizona - Department of Management Information Systems

Shawn Curley

University of Minnesota - Minneapolis

Jingjng Zhang

Indiana University - Kelley School of Business - Department of Operation & Decision Technologies

Date Written: February 26, 2017

Abstract

Recommender systems are an integral part of the online retail environment. Prior research has focused largely on computational approaches to improving recommendation accuracy, and only recently researchers have started to study their behavioral implications and potential side effects. We used three controlled experiments, in the context of purchasing digital songs, to explore the willingness-to-pay judgments of individual consumers after being shown personalized recommendations. In Study 1, we found strong evidence that randomly assigned song recommendations affected participants’ willingness to pay, even when controlling for participants’ preferences and demographics. In Study 2, participants viewed actual system-generated recommendations that were intentionally perturbed (introducing recommendation error) and we observed similar effects. Study 3 showed that the influence of personalized recommendations on willingness-to-pay judgments obtained even when preference uncertainty was reduced through immediate and mandatory song sampling prior to pricing. The results demonstrate the existence of important economic side effects of personalized recommender systems and inform our understanding of how system recommendations can influence our everyday preference judgments. The findings have significant implications for the design and application of recommender systems as well as for online retail practices.

Keywords: behavioral economics, electronic commerce, laboratory experiments, preferences, recommender systems, willingness to pay

Suggested Citation

Adomavicius, Gediminas and Bockstedt, Jesse and Curley, Shawn and Zhang, Jingjng, Effects of Online Recommendations on Consumers’ Willingness to Pay (February 26, 2017). Information Systems Research, Forthcoming, Kelley School of Business Research Paper No. 17-45, Available at SSRN: https://ssrn.com/abstract=2982194

Gediminas Adomavicius

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Jesse Bockstedt

University of Arizona - Department of Management Information Systems ( email )

AZ
United States

Shawn Curley

University of Minnesota - Minneapolis ( email )

110 Wulling Hall, 86 Pleasant St, S.E.
308 Harvard Street SE
Minneapolis, MN 55455
United States

Jingjng Zhang (Contact Author)

Indiana University - Kelley School of Business - Department of Operation & Decision Technologies ( email )

1309 E. Tenth Street
HH4143
Bloomington, IN 47401
United States

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