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Marketplaces are everywhere—even in online dating

Book review: A look at what makes good market design from game-theory pioneer Alvin E. Roth


 

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Who Gets What—And Why

Alvin E. Roth

Game theory, the study of strategic decision-making, has become immensely important in economics. Contributions in this area brought Roth, a professor of economics at Stanford University, a Nobel prize in 2012. He has now transformed his insights into a fascinating new book on market design.

In Who Gets What—And Why, Roth considers “the new economics of matchmaking and market design,” looking at those unusual but essential markets where trust, determination and compatibility can matter more than price. As he explains, “You can’t just inform Yale University that you’re enrolling . . . neither can Yale or Google dictate who will come to them.” Each party must choose the other. These “matching markets” are everywhere: Those looking for jobs, sex, medical care or romance must be matched to others with complementary needs. Roth considers how such markets work, and how they can be improved.

For example, he examines online dating as a marketplace, and explains how it can be impeded by “cheap talk.” Attractive women receive more messages than they can answer. Men, who find themselves ignored, respond by sending a greater volume of superficial messages. When Roth’s colleague was asked to design a better website, she gave participants a limited number of virtual “roses” that could be attached to messages as a signal of particular interest. These roses brought a significantly higher response rate by helping the recipient distinguish between genuine interest and spam messages.

Good market design can be a matter of life and death, as in the case of organ transplantation. It is widely forbidden to buy or sell organs, and those who require a transplant must often turn to family and close friends. But the need for a blood-type match makes this more complicated. Enter Roth. His team designed a marketplace where organ recipients with willing but incompatible donors could conduct a simultaneous exchange—a kidney swap. The result was a dramatic increase in organ availability.

Roth has now developed a reputation as a troubleshooter in markets as varied as public school placements and residencies for medical school students. This book is his way of sharing what he learned along the way, making it an intriguing field guide from a true pioneer.


 
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