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Selected recent publications in the top management and economics journals

Targeted Advertising and Consumer Inference

( Shin, Jiwoong | YU, Jungju )



The mere fact that consumers are targeted by advertisements can affect their inference about the expected utility of a product. We build a micro-model where multiple firms compete through targeted advertising. Consumers make inferences from targeted advertising about their potential match values for the product category, as well as the advertising firm's unobserved quality. We show that in equilibrium, upon being targeted by a firm, consumers make optimistic inferences about the product category and the firm's quality. With such improved beliefs, a targeted consumer is more likely to engage in a costly search throughout the category. We find that the increase in consumer search creates an advertising spillover beyond the level of the mere awareness effects of advertising and that firms' equilibrium level of targeted advertising can be non-monotonic in targeting accuracy. Additionally, we show that sometimes, it can be optimal for firms to relinquish customer data and instead engage in non-targeted advertising. The results provide insights into the trade-offs between advertising reach and targeting accuracy.

Simple Mechanisms for Sequential Capacity Allocations

( Kim, Bosung | Kim, Sang Won | Iravani, Seyed M. R. | Park, Kun Soo )



We consider a sequential capacity allocation problem of a firm to its retail branches that sell the firm's product. The orders of the retail branches to the headquarters arrive sequentially, and each allocation decision has to be made before the next order arrives. The objective of the headquarters is to maximize the overall firm profit, that is, the total profit of all the retail branches. Each retail branch makes ordering decision independently by using private information about its local market condition in order to maximize its own profit. Hence, they may strategically inflate their order quantities in their favor, potentially hurting the firm profit. We first discuss the importance of capacity rationing in maximizing the firm's profit by finding the first-best allocation outcome, the optimal solution without information asymmetry. Based on this, we design mechanisms that effectively overcome the information asymmetry. First, we design a simple threshold-type mechanism where truthful reporting is optimal and capacity rationing is implemented by limiting allocation beyond a pre-specified threshold. We show this mechanism is optimal within the class of mechanisms that do not allow any side payments. We also design a mechanism with side payments that is optimal among all possible mechanisms. In particular, we show that this payment-based mechanism achieves the first-best allocation, fully overcoming information asymmetry. Although optimal, it may not be practical because of the complexity in the side payment menu, so we also propose a simple variant of it with only a few parameters. Our extensive numerical study shows that our simple threshold-type and payment-based mechanisms achieve near-optimal performance.

Drinking Through Good Times and Bad: The Role of Consumer Differences

( Joo, Hailey Hayeon | Kim, Minki | Lee, Jungmin | Chintagunta, Pradeep )



The authors revisit the question of alcohol consumption and public health over business cycles by decomposing overall alcohol consumption into drinking frequency and intensity in relation to consumer heterogeneity. To study this question, they use consumer-level panel data on the reported consumption (not purchases) of beer, which is the most heavily consumed alcoholic beverage and accounts for the majority of binge drinking in the United States. Leveraging the panel nature of the data, the authors find a negative (positive) relationship between unemployment and drinking frequency (intensity). Total consumption, which is the product of drinking frequency and intensity, is procyclical. To uncover differences in behavior across consumers and to provide policy recommendations at a segment level, the authors present a structural model where consumers simultaneously choose the frequency and intensity of their alcohol consumption. They find differences across consumers in their behaviors, notably with respect to income and age. They conduct policy simulations to compare the effectiveness of alcohol-related policies to counter the adverse effects of recessions on the health of vulnerable groups such as low-income and elderly populations.

Can It Clean Up Your Inbox? Evidence from South Korean Anti-spam Legislation

( Ju, Jaehyeon | Cho, Daegon | Lee, Jae Kyu | Ahn, Jae-Hyeon )



Although spam email messages have been the primary source of cybercrime since the early Internet era, there is no quick fix to this problem. Governments have established anti?spam legislation, but surprisingly, there has been no measurement of policy impact. This study aims to fill the gap by utilizing a quasi?experimental setting in South Korea, where the anti?spam policy was substantially amended in November 2014. A significant change was in the default setting, switching from an opt?out to an opt?in scheme, which required that commercial email senders obtain recipients’ prior consent. Also, the law notably escalated the deterrent penalties for perpetrators. To empirically examine the policy effectiveness, we use a large?scale data set of 5.61 billion spam emails originating from over 38,000 spammers in 226 countries during twenty months in 2014?2015. Our findings suggest that the amended policy adopting the opt?in scheme decreased the volume of spam originating from Korea by 16.1%. The expected economic gain from the increased productivity of recipients is 7.649 million USD per year. This paper contributes to the literature by highlighting that a well?designed policy can lower cybersecurity incidents that threaten organizations, operations, and individuals. Our finding also provides important implications for policymakers and managers in designing effective policies with data?driven evidence.

Repairing a Cracked Mirror: The Heterogeneous Effect of Personalized Digital Nudges Driven by Misperception

( Jung, Miyeon | Cho, Daegon | Shin, Euncheol )



Our study aims to deepen the understanding of personalized digital nudges by evaluating their effects on energy?saving behavior. We conducted a field experiment with a leading smart metering company in South Korea to investigate whether customers save more energy when a personalized goal and feedback are provided, and how the impacts of nudges vary according to the types of misperception. Specifically, we focused on the behavior of customers who underestimate or overestimate their past electricity usage compared to their actual consumption. We merged daily energy consumption with a pre?experiment survey for the customers. We found that goal?setting and feedback mechanisms have a markedly different impact on each type of misperception. Underestimating customers reduced energy consumption only under the “goal setting with feedback treatment”. Conversely, overestimating customers reduced energy consumption even under the “goal setting without feedback” condition. The underlying mechanism is suggested as updating biased beliefs towards goal achievement. Overall, the results demonstrate that personalized nudges lead to heterogeneous behavioral responses and that service providers and policymakers can use these signals to enrich their planning of behavioral nudges.

Contact : Joo, Sunhee ( shjoo2006@kaist.ac.kr )

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