Multichannel Advertising: Budget Allocation in the Presence of Spillover and Carryover Effects05
( Chen, Huijun | Chen, Ying-Ju | Park, Sung-Hyuk | Shin, Dongwook )M&SOM-MANUFACTURING & SERVICE OPERATIONS MANAGEMENT2025-05
Abstract
Problem definition: This paper explores budget allocation strategies for a multichannel ad campaign, where a marketing agency strives to maximize the total conversions by dynamically adjusting budget allocation over marketing channels. A salient feature of the problem is the interplay of spillover and carryover effects; namely, customers are exposed to ads through multiple channels, and thus ads from one channel affect the effectiveness of the subsequent ads from other channels. Methodology/results: We construct a simple model that captures the essential features of this problem. Our theoretical analysis yields two main insights. First, motivated by common practice based on the last-click attribution method, we examine a class of budget allocation policies that are oblivious to the spillover and carryover effects. If the agency decreases the budget on a channel based on past low conversions while neglecting to account for the fact that the ads from that channel induced conversions through other channels, then the conversions from that channel will decrease. Consequently, the agency will further decrease the budget on the channel. This pattern repeats, eventually leading to suboptimal performance in the long run. Second, we derive a fluid approximation to consumer dynamics across multiple channels, which lends itself to characterizing structural properties of optimal dynamic budget allocation policies that internalize the cross-channel interactions. To enable practical implementation, we propose a static budget allocation policy that is both tractable in practice and near optimal for long campaigns. Managerial implications: Our theoretical results provide normative guidance for budget allocation in multichannel ad campaigns. We illustrate the efficacy of our proposed method through a numerical study based on data from an online multichannel ad campaign.
Targeted Advertising as Implicit Recommendation: Strategic Mistargeting and Personal Data Opt-out
( Ning, Z. Eddie | Shin, Jiwoong | YU, Jungju )MARKETING SCIENCE2025-04
Abstract
We study an advertiser's targeting strategy and its effects on consumer data privacy choices, both of which determine the advertiser's targeting accuracy. Targeted ads, serving as implicit recommendations when consumer preferences are uncertain, not only influence the consumer's beliefs and purchasing decisions, but also amplify the advertiser's temptation toward strategic mistargeting: sending ads to poorly matched consumers. Our analysis reveals that advertisers may, paradoxically, choose less precise targeting as accuracy improves. Even if prediction is perfect, the advertiser still targets the wrong consumers, leading to strategic mistargeting. Nevertheless, consumer surplus can remain positive because of improved identification of well-matched consumers, thereby reducing the incentive for consumers to withhold information. However, the scenario shifts with endogenous pricing; better prediction leads to more precise targeting although mistargeting persists. To exploit the recommendation effect of advertising, the advertiser raises prices instead of diluting recommendation power, lowering consumer welfare and prompting consumers to opt out of data collection. Furthermore, we investigate the impact of consumer data opt-out decisions under varying privacy policy defaults (opt in versus opt out). These decisions significantly affect equilibrium outcomes, influencing both the advertiser's targeting strategies and consumer welfare. Our findings highlight the complex relationship between targeting accuracy, privacy choices, and advertisers' incentives.
Two Heads Are Better than One: Task Division and Decision Control in Inventory Planning
( Park, Young Soo | Lee, Yun Shin | Siemsen, Enno )PRODUCTION AND OPERATIONS MANAGEMENT2025
Abstract
We examine when and how task division improves performance for inventory planning. Specifically, we consider a decentralized inventory management context with two interdependent subtasks: preparing a forecast and setting a service level. Using a behavioral experiment, we reveal that the task challenge moderates the relationship between task division and performance. Our findings indicate that task division improves performance when the task becomes more challenging, such as under high demand uncertainty. It facilitates counteracting behavior, where individuals adjust their decisions to counterbalance their partner's errors, leading to more stabilized final decisions. We identify this counteracting behavior as a critical mechanism driving the benefits of task division, mainly when subtasks are interdependent. We demonstrate the robustness of our findings by examining an egalitarian system, where decision-making authority is shared among team members, and a hierarchical system, where decision control resides entirely with one team member.
Social Conflict and the Evolution of Unequal Conventions
( Hwang, Sung-Ha | Naidu, Suresh | Bowles, Samuel )Journal of the European Economic Association2024-10
Abstract
We propose a theory of social norms (or conventions) that implement substantial levels of inequality between men and women, ethnic groups, and classes and that persist over long periods of time despite being inefficient and not supported by formal institutions. Consistent with historical cases, we extend the standard asymmetric stochastic evolutionary game model to allow subpopulation sizes to differ and idiosyncratic rejection of a status quo convention to be intentional to some degree (rather than purely random as in the standard evolutionary models). In this setting, if idiosyncratic play is sufficiently intentional and the subordinate class is sufficiently large relative to the elite, then risk-dominated conventions that are both more unequal and inefficient relative to alternative conventions will be stochastically stable and may persist for long periods. We show that the same is true in a general bipartite network of the population if most of the subordinate groups interactions are local, while the elite is more "cosmopolitan". We apply the model to the evolution of wage conventions on the bipartite network of workers and employers, and find that an unequal monopsonistic wage convention is robust to the idiosyncratic play of workers that otherwise might displace it.
Physical Frictions and Digital Banking Adoption
( Choi, Hyun-Soo | Loh, Roger K. )MANAGEMENT SCIENCE2024-10
Abstract
The behavioral literature suggests that minor frictions can elicit desirable behavior without obvious coercion. Using closures of ATMs in a densely populated city as an instrument for small frictions to physical banking access, we find that customers affected by ATM closures increase their usage of the bank's digital platform. Other spillover effects of this adoption of financial technology include increases in point-of-sale transactions, electronic funds transfers, automatic bill payments, and savings, and a reduction in cash usage. Our results show that minor frictions can help overcome the status quo bias and facilitate significant behavior change.
