In Who Gets What and Why: The New Economics of Matchmaking and Market Design, Roth reveals the matching markets hidden around us and shows how to recognize a good match and make smarter, more confident decisions.
The efficient allocation of scarce resources
It was 5:00 am on an April morning in 2010. Eight teams of surgeons were preparing to operate on eight patients in four different cities. Four healthy people would each be donating one of their kidneys to someone they had never met, and those four recipients, each suffering from end-stage renal disease would receive a new lease on life.
At the same time, Jerry and Pamela Green were at their kitchen table in Lincoln, Massachussets, studying the weather. They were soon to fly as volunteers, in their own small airplane, to Lebanon, New Hampshire, to pick up one of those kidneys, take it to Philadelphia, pick up another kidney there, and take it to Boston. Because they identified their flight with the call sign ‘Lifeguard’, signifying medical urgency, the air traffic controllers would take them, no questions asked, right through one of the world’s busiest airspaces, down the Hudson River and over Newark airport, on their way to Philadelphia, where they would be scheduled to land immediately.
Kidneys for transportation are scarce. So is airspace. Who got which kidney, which operating room, and which flight path that day in April all required an allocation of scarce resources, so it is perhaps fitting that when Jerry is not flying a small plane, he is a professor of economics at Harvard.
Economics is about the efficient allocation of scarce resources, and about making resources less scarce.
The Talmud tells of a rabbi who is asked what the Creator of the universe has been doing since the creation. The rabbi answers, ‘He has been making matches.’
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.
Often there is a structured matchmaking environment–some kind of application and selection process–through which that courtship and choosing takes place. Those matching processes, and how well we navigate them, determine some of the most important turning points in our lives, and many smaller ones, too.
Even if matches are made in heaven, they are found in marketplaces. And markets, like love stories, begin with desires.
Prices in matchmaking markets
Until recently, economists often passed quickly over matching and focused primarely on commodity markets, in which prices alone determine who gets what.
But in matchmaking markets, prices don’t work that way. Going to college can be costly, and not everyone can afford it. But that isn’t because colleges raise tuition until only as many students can afford to attend as the college can accommodate–that is until demand equals supply. On the contrary, selective colleges, high priced as they are, try to keep the tuition low enough so that many students would like to attend, and then they admit a fraction of those who apply.
Some matches don’t use money at all. Kidney transplants cost a lot, but cash doesn’t decide who gets a kidney. In fact, it’s illegal to buy or sell kidneys for transplantation.
Every market has a story to tell
Sometimes a matching process, whether formal or ad hoc, evolves over time. But sometimes, especially recently, it is designed. The new economics of market design brings science to matchmaking, and to markets generally.
Market design helps solve problems that existing marketplaces haven’t been able to solve naturally. Most markets and marketplaces operate in the substantial space between Adam Smith’s invisible hand and Chairman Mao’s five-year plans. Markets differ from a central planning because no one but the participants themselves determines who gets what. And marketplaces differ from anything-goes laissez-faire because participants enter the marketplace knowing that it has rules.
Stories about market design often begin with failure–failure to provide thickness, to ease congestion, or to make participation safe and simple. Market designers are like firefighters who come to the rescue when a market has failed and try to redesign a marketplace, or design a new one, that will restore order.