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Register a new userInterference, Bias, and Variance in Two-Sided Marketplace Experimentation: Guidance for Platforms
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Two-sided marketplace platforms often run experiments to test the effect of an intervention before launching it platform-wide. A typical approach is to randomize individuals into the treatment group, which receives the intervention, and the control group, which does not. The platform then compares the performance in the two groups to estimate the effect if the intervention were launched to everyone. We focus on two common experiment types, where the platform randomizes individuals either on the supply side or on the demand side. The resulting estimates of the treatment effect in these experiments are typically biased: because individuals in the market compete with each other, individuals in the treatment group affect those in the control group and vice versa, creating interference. We develop a simple tractable market model to study bias and variance in these experiments with interference. We focus on two choices available to the platform: (1) Which side of the platform should it randomize on (supply or demand)? (2) What proportion of individuals should be allocated to treatment? We find that both choices affect the bias and variance of the resulting estimators but in different ways. The bias-optimal choice of experiment type depends on the relative amounts of supply and demand in the market, and we discuss how a platform can use market data to select the experiment type. Importantly, we find in many circumstances, choosing the bias-optimal experiment type has little effect on variance. On the other hand, the choice of treatment proportion can induce a bias-variance tradeoff, where the bias-minimizing proportion increases variance. We discuss how a platform can navigate this tradeoff and best choose the treatment proportion, using a combination of modeling as well as contextual knowledge about the market, the risk of the intervention, and reasonable effect sizes of the intervention.
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We develop an analytical framework to study experimental design in two-sided marketplaces. Many of these experiments exhibit interference, where an intervention applied to one market participant influences the behavior of another participant. This interference leads to biased estimates of the treatment effect of the intervention. We develop a stochastic market model and associated mean field limit to capture dynamics in such experiments, and use our model to investigate how the performance of different designs and estimators is affected by marketplace interference effects. Platforms typically use two common experimental designs: demand-side (customer) randomization (CR) and supply-side (listing) randomization (LR), along with their associated estimators. We show that good experimental design depends on market balance: in highly demand-constrained markets, CR is unbiased, while LR is biased; conversely, in highly supply-constrained markets, LR is unbiased, while CR is biased. We also introduce and study a novel experimental design based on two-sided randomization (TSR) where both customers and listings are randomized to treatment and control. We show that appropriate choices of TSR designs can be unbiased in both extremes of market balance, while yielding relatively low bias in intermediate regimes of market balance.
We present the Stata commands probitfe and logitfe, which estimate probit and logit panel data models with individual and/or time unobserved effects. Fixed effect panel data methods that estimate the unobserved effects can be severely biased because of the incidental parameter problem (Neyman and Scott, 1948). We tackle this problem by using the analytical and jackknife bias corrections derived in Fernandez-Val and Weidner (2016) for panels where the two dimensions ($N$ and $T$) are moderately large. We illustrate the commands with an empirical application to international trade and a Monte Carlo simulation calibrated to this application.
We investigate the problem of fair recommendation in the context of two-sided online platforms, comprising customers on one side and producers on the other. Traditionally, recommendation services in these platforms have focused on maximizing customer satisfaction by tailoring the results according to the personalized preferences of individual customers. However, our investigation reveals that such customer-centric design may lead to unfair distribution of exposure among the producers, which may adversely impact their well-being. On the other hand, a producer-centric design might become unfair to the customers. Thus, we consider fairness issues that span both customers and producers. Our approach involves a novel mapping of the fair recommendation problem to a constrained version of the problem of fairly allocating indivisible goods. Our proposed FairRec algorithm guarantees at least Maximin Share (MMS) of exposure for most of the producers and Envy-Free up to One item (EF1) fairness for every customer. Extensive evaluations over multiple real-world datasets show the effectiveness of FairRec in ensuring two-sided fairness while incurring a marginal loss in the overall recommendation quality.
In many observational studies in social science and medical applications, subjects or individuals are connected, and one units treatment and attributes may affect another units treatment and outcome, violating the stable unit treatment value assumption (SUTVA) and resulting in interference. To enable feasible inference, many previous works assume the ``exchangeability of interfering units, under which the effect of interference is captured by the number or ratio of treated neighbors. However, in many applications with distinctive units, interference is heterogeneous. In this paper, we focus on the partial interference setting, and restrict units to be exchangeable conditional on observable characteristics. Under this framework, we propose generalized augmented inverse propensity weighted (AIPW) estimators for general causal estimands that include direct treatment effects and spillover effects. We show that they are consistent, asymptotically normal, semiparametric efficient, and robust to heterogeneous interference as well as model misspecifications. We also apply our method to the Add Health dataset and find that smoking behavior exhibits interference on academic outcomes.
When the Stable Unit Treatment Value Assumption (SUTVA) is violated and there is interference among units, there is not a uniquely defined Average Treatment Effect (ATE), and alternative estimands may be of interest, among them average unit-level differences in outcomes under different homogeneous treatment policies. We term this target the Homogeneous Assignment Average Treatment Effect (HAATE). We consider approaches to experimental design with multiple treatment conditions under partial interference and, given the estimand of interest, we show that difference-in-means estimators may perform better than correctly specified regression models in finite samples on root mean squared error (RMSE). With errors correlated at the cluster level, we demonstrate that two-stage randomization procedures with intra-cluster correlation of treatment strictly between zero and one may dominate one-stage randomization designs on the same metric. Simulations demonstrate performance of this approach; an application to online experiments at Facebook is discussed.
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