If you’ve ever sought a job or hired someone, applied to college or guided your child into a good kindergarten, asked someone out on a date or been asked out, you’ve participated in a kind of market. Most of the study of economics deals with commodity markets, where the price of a good connects sellers and buyers. But what about other kinds of “goods,” like a spot in the Yale freshman class or a position at Google? This is the territory of matching markets, where “sellers” and “buyers” must choose each other, and price isn’t the only factor determining who gets what. 

Our guest this week, Alvin E. Roth, is one of the world’s leading experts on matching markets. He has even designed several of them, including the exchange that places medical students in residencies and the system that increases the number of kidney transplants by better matching donors to patients. Alvin is the Craig and Susan McCaw Professor of Economics at Stanford University. He is also the Gund Professor of Economics and Business Administration Emeritus at Harvard University. He works in the areas of game theory, experimental economics and market design. He is also the author of the fantastic new book, Who Gets What — and Why: The New Economics of Matchmaking and Market Design, and in 2012 he won the Nobel Prize in Economic Sciences “for the theory of stable allocations and the practice of market design” …whatever that means.

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“Markets are what people do. It’s how we get along with each other. When you’re not alone and you’re interacting with other people there is a good chance you’re engaged in some kind of marketplace.”

– Alvin Roth

Quotes from Alvin:

[shadowbox]”Many markets are matching markets. They are markets in which you can’t just choose what you want. Even if you can afford it, you have to be chosen as well.”

“You can see marriage changing over time as the market changes. There was a time when lots of people married their high school sweetheart. But as more and more people started participating in higher education, we’ve seen the marriage age go up for Americans.”

“We had prohibition against alcohol and when you make that market illegal it doesn’t make the market go away, it just makes the legal markets go away.”[/shadowbox]

What we learn in this episode:

• What is the true definition of a market?
• What are matching markets and what are some examples?
• What is a repugnant transaction?
• What’s a great trick to increase your chances of being accepted to the college of your choice?

Resources:

Who Gets What — and Why: The New Economics of Matchmaking and Market Design

http://marketdesigner.blogspot.com/

http://web.stanford.edu/~alroth/

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