Random Book recommendation — Who Gets What and Why: The New Economics of Matchmaking and Market Design
Overall, the message of the book is that markets are not a one-size fits all natural construct that is discovered, but instead that economists acting as engineers need to help shape markets to achieve their desired objectives. I would add public policy to the market-shaping as well although that is, unfortunately, beyond the scope of what Roth addresses in his book- Jason Furman
Al Roth’s Who Gets What and Why: The New Economics of Matchmaking and Market Design is the best lay person introduction to matching markets you can read.
Economics is about the efficient allocation of scarce resources, and about making resources less scarce.
Matching is economist-speak for how we get the many things we choose in life that also must choose us. You can’t just inform Yale University that you’re enrolling or Google that you’re showing up for work. You also have to be admitted or hired. Neither can Yale or Google dictate who will come to them, any more than one spouse can simply choose another: each also has to be chosen.
A market involves matching whenever price isn’t the only determinant of who gets what.
When we think about helping markets work well, we also need to think about what it means to work well. Markets that function well give us choices, and so markets that operate freely are related to our liberty as well as to our prosperity.
Good designs are a moving target. Some markets may suffer because of rules that have yet to be made, while others may suffer from rules that have yet to be changed.
To use an analogy from civil engineering, the Romans built great roads and bridges, yet we don’t build them the same way today. That’s partly because we have new materials and techniques and understandings that let us build bridges longer and stronger. But it’s also because bridges, like markets, change the way people behave. Better bridges encourage more traffic, which creates congestion and which requires better roads and eventually bigger bridges. And those new roads and bridges mostly have to be built so as to connect to the already existing network of roads and bridges.
Alvin Roth was born in 1951 in the New York City borough of Queens. His parents, first-generation Americans, taught typing and stenography in the public high school system. Roth was always “a bit of a problem child,” he claims. Unhappy in school, he dropped out at age 16.
At the time, he was enrolled in Columbia University’s Science Honors Program, which held math and science classes on Saturday mornings for gifted youth from the New York City area. With the help of people associated with the honors program, he was admitted to Columbia’s undergraduate engineering program without a high school diploma. He graduated in three years with a bachelor’s degree in operations research.
“Who knew that I didn’t mind taking classes and learning? But I didn’t like high school very much,” Roth says. “We weren’t a good match.”
Roth moved to Stanford University in 1971 to pursue a PhD in operations research, sometimes described as a scientific approach to managing complex systems. There, he gravitated toward game theory, his interest sparked by a class with visiting professor Michael Maschler from the Hebrew University of Jerusalem. Roth also connected with Bob Wilson, a game theorist who taught at the Stanford Business School and became an important mentor.
Roth’s dissertation solved a problem that had been raised 30 years earlier in mathematician John von Neumann and economist Oskar Morgenstern’s seminal Theory of Games and Economic Behavior, the book that started the field of game theory. Roth downplays this accomplishment, saying the whole topic turned out to be a dead end. But dead ends are not necessarily bad, he adds. “The field has made a lot of progress by exploring dead ends.”
Before leaving California to take up a teaching position at the University of Illinois at Champaign-Urbana, he made a pilgrimage of sorts to visit Shapley, then an eminent game theorist at the RAND Corporation, a think tank in Santa Monica. The young Roth didn’t know Shapley, but because the field was so small in those days, seeking out its leaders somehow made sense. “It wasn’t hard to get the idea that, if you proved a new theorem in game theory, then you should go tell Shapley about it.”
The boundaries of the discipline, meanwhile, were shifting. “Shortly after I got my PhD in 1974, it looked like game theory was going to thrive as a part of operations research. But it didn’t — it thrived in economics,” Roth says.
At Illinois, where Roth was appointed at the age of 22 as assistant professor in the departments of Economics and Business Administration, he began doing experiments in game theory with psychologist colleagues, among them J. Keith Murnighan.