Title: Incentivized Advertising: Treatment Effect and Adverse Selection,
Abstract: Incentivized advertising is a new ad format that is gaining popularity in
digital mobile advertising. In incentivized advertising, the publisher rewards
users for watching an ad. An endemic issue here is adverse selection, where
reward-seeking users select into incentivized ad placements to obtain rewards.
Adverse selection reduces the publisher's ad profit as well as poses a
difficulty to causal inference of the effectiveness of incentivized
advertising. To this end, we develop a treatment effect model that allows and
controls for unobserved adverse selection, and estimate the model using data
from a mobile gaming app that offers both incentivized and non-incentivized
ads. We find that rewarding users to watch an ad has an overall positive effect
on the ad conversion rate. A user is 27% more likely to convert when being
rewarded to watch an ad. However there is a negative offsetting effect that
reduces the effectiveness of incentivized ads. Some users are averse to delayed
rewards, they prefer to collect their rewards immediately after watching the
incentivized ads, instead of pursuing the content of the ads further. For the
subset of users who are averse to delayed rewards, the treatment effect is only
13%, while it can be as high as 47% for other users.