Ads in AI Chatbots? An Analysis of How Large Language Models Navigate Conflicts of Interest

As Large Language Models (LLMs) become a primary interface between users and the web, companies face growing economic incentives to embed commercial influence into AI-mediated conversations. We present two preregistered experiments (N = 2,012) in which participants selected a book to receive from a large eBook catalog using either a traditional search engine or a conversational LLM agent powered by one of five frontier models. Unbeknownst to participants, a fifth of all products were randomly designated as sponsored and promoted in different ways. We find that LLM-driven persuasion nearly triples the rate at which users select sponsored products compared to traditional search placement (61.2% vs. 22.4%), while the vast majority of participants fail to detect any promotional steering. Explicit "Sponsored" labels do not significantly reduce persuasion, and instructing the model to conceal its intent makes its influence nearly invisible (detection accuracy < 10%). Altogether, our results indicate that conversational AI can covertly redirect consumer choices at scale, and that existing transparency mechanisms may be insufficient to protect users.

Inserting advertisements (ads) into consumer-facing LLM output is emerging as a new business model, but there is little shared evidence on how such ad insertion should be evaluated or how it affects user preferences. We introduce LLMAdBench, a human-preference benchmark for studying advertising in LLM-generated content. The benchmark isolates a simple but practically important decision: given a user conversation, an LLM response, and a matched advertisement, where should the ad be placed? Our dataset compares pairs of responses that differ only in ad position while holding all other conditions fixed including the user query, base answer, advertisement, and disclosure condition. Human annotators evaluate each pair based on six criteria from both advertiser's and user's perspectives. The resulting benchmark contains more than 18000 human judgments across two disclosure conditions: explicitly labeling the ad as sponsored and merging it into the response without disclosure. We use LLMAdBench to evaluate eight frontier LLMs as preference judges and find that they are not reliable substitutes for human evaluation. Even the most stable models reverse roughly one quarter of their decisions when the presentation order is swapped, agreement across models is low, and their placement preferences differ systematically from those of human annotators. Moreover, LLMAdBench contains substantial learnable signal. In particular, a Qwen3-8B model fine-tuned on the human preferences improves substantially over its base model and outperforms all zero-shot frontier judges on the held-out prediction task. Beyond model evaluation, LLMAdBench provides quantitative evidence on the advertiser-user trade-off and shows that the sponsorship disclosure systematically changes users' preference over ad placement.

Large language models (LLMs) now serve as conversational shopping assistants on platforms that also sell advertising. These AI agents face a conflict of duty. They advise consumers who rely on their judgment, yet are deployed by platforms that benefit when sponsored listings are chosen. Sponsorship disclosures, designed to allow consumers to penalize paid placements, now reach the AI agent rather than the consumer, and the agent's evaluation of them is hidden from the consumer. Drawing on the fiduciary concept of conflict of duty, we argue that an agent's evaluation of a sponsored listing should not depend on which party deployed it. In controlled choice experiments, we manipulate assigned roles in the system prompt to name either a traveler or a booking platform as the agent's principal. Platform delegation significantly attenuates the penalty that agents apply to sponsored listings and weakens the skepticism that disclosure triggers in their reasoning traces. We replicate out findings across LLMs and reasoning depths. A second study decomposes the disclosure label and shows that the divergence between the two delegates widens significantly when the paid placement is attributed to the platform. Stricter terminology ("Sponsored" instead of "Promoted") lowers choice of paid listings but does not close this gap when the platform is named. The findings show that disclosure mandates designed for human consumers cannot by themselves protect consumers in AI-mediated commerce.