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

Who gets what and why gives the reader an idea about how careful structuring of a market place can lead to great improvements in efficiency. The field that the author received the nobel prize in has been growing in importance over the last few decades and there is no doubt that design of market places is something policy makers from the macroeconomic down to the microeconomic sphere should care about. In this book, Alvin Roth goes through examples throughout his career where improving market design has led to better systems for people to live in. It is clear and interesting.The book is split into 4 parts, the first is titled Markets are everywhere. The author starts by describing markets and goes through commodity ideas and how standardizing of products leads to markets that are thick. He discusses how commodity exchanges were set up in the US in Chicago for example and how wheat trades enormous volumes in a standardized fashion. He discusses the coffee market as well which is a nice little insight. The author then moves on to discussing the market for kidneys; an exchange he helped to create. Here is where the reader starts to really get a feel for the work the author has done. The complexity in coordinating kidney transfers is real and the construction of chains of donors who could trade kidneys amongst them in a mutually dependent way turned out to be able to save many lives. The author discusses how the kidney exchanges evolved and how improving the mechanisms for exchange was in everyone's interest.The second section is titled Thwarted Desires in which he describes some market failures. The author starts by discussing how in situations in which there is a first mover advantage, market places can fail as participants try to beat each other in order even though by taking such an action they reduce the amount of information needed to make a decision. Such coordination failures lead to suboptimal selections by both parties. The author discusses some of the subject matter of Flash Boys and by that I mean high frequency finance. He describes why the spending of billions on infrastructure for speed of trading which has no real economic benefits are where markets can also fail. Speed of markets should not in and of itself be the desire for market design. The author finally touches upon making markets safe to transact in such that the rules of the market place are adhered to so that people can trust the mechanism of trade.The author moves into the real market designs that are being used by medical and school systems in part 3. He first discusses how the placement of medical schools was flawed and people were being placed far too early but such an outcome was the inevitable consequence of the issues of part 2 where first mover advantage ruined coordination. The author discusses surgeons as well as urologists and how the culture of the medical field can impact the required solutions to the failures of a market place. The author then discusses the school systems in NY and Boston where he had a direct impact on improving. He discusses the preference list that were being asked of students each year and how the back and forth between students being selected and the city system led to congestion that was inefficient for everyone. The author also discussed Boston which had different problems. But in this section the reader gets a sense of how clever design of markets can lead to better outcomes for everyone.The author then gets into some ethical issues like repugnant markets and brings up horsemeat in California as banned due to its repugnancy by the population in California. The boundaries of what should be eligible for trade are contextual to time and place and things like organs for sale and surrogacy can lead to questions about what broad set of values does the population have and given that what should be allowed to be traded and under what conditions. Once we know what goods and services we want to be transactable having the best market designs to facilitate will lead to better outcomes for those involved. The author convinces the leader through the book that market design can be instrumental in efficiency gains.Who gets what and why is very readable and interesting. Rarely do people talk about market design so its a nice change of pace for a popular economics book. I think anyone who reads this will have a better idea about some of what economists look at as well as how market design can make a world of difference to the outcomes of the marketplace and free market can mean many different things as markets are not all alike.

A surprinsingly quick, easy read. Lots of examples and stories that add interest and increase understanding of the topic. A lot of it is about "matching" markets -- like colleges matching with students or applicants matching with jobs (i.e., they're not commodities and both buyer and seller care who specifically they are transacting with). Another pervasive example is the matching of kidney donors -- where a system Roth devised is in widespread use. Also lots of discussion about the ways markets can fail and the ways they can sometimes be fixed. This is Nobel-prize-winning wisdom, presented at a level and in a format that is understandable to most anyone who's interested.

A great quick overview of market theory. Mostly digestible and very readable, although a few of the detailed parts could better be explained with a whiteboard or a more formal textbook. Conveys the main points effectively, though. Got me thinking about how common markets are and how important design is in making them functions. Great layman's book for someone intellectually interested in markets.

There’s an apocryphal story about how Richard Nixon’s speechwriter quit. Back in the days before the autocue became portable and discreet, speechwriters would create enormous flashcards through which the politician would flip during his speech. The famous last speech allegedly climaxed as follows:FLASHCARD: We can whip inflation, and I’m going to tell you howFLASHCARD: We can find every American man and woman a job and I’m going to tell you howFLASHCARD: We can win in Vietnam and I’m going to tell you howFLASHCARD: You’re on your own, budHalfway through “Who Gets What” it starts to feel a lot like Alvin Roth is about to pull that type of stunt on his reader. He keeps talking about how he has an algorithm that will decide on fair kidney exchanges; an algorithm to place doctors with residency programs; an algorithm to place law students with the right clerkship; an algorithm to place kids at the right nursery in New York and the right public school in Boston. An algorithm that can’t be gamed. An algorithm that makes the market “thick.” An algorithm that prevents the market from going “early” or running into “congestion” but helps it stay “fast” and “safe”On page 131 out of 230, while I’m despairing there’s ever going to be an algorithm in the book, but also secretly hoping it might bring about world peace or help me grow more hair on my scalp (to say nothing of knowing more about kidneys and kidney exchanges than I ever thought I would), comes some early relief in the form of the words “PART III: Design Inventions to Make Markets Smarter, Thicker and Faster.” Lo and behold, on page 141 the algorithm appears, as it’s meant to be applied to employers and applicants for jobs:Step 0. Applicants and employers privately submit preferences to a clearinghouse in the form of rank order listsStep 1. Each employer offers jobs to its top-choice candidates up to the number of its available positions. Each applicant looks at all the offers he or she has received, tentatively accepts the best one (the one highest on her preference list) and rejects any other…Step n. Each employer that had a job offer rejected in the previous step, offers that job to its next choice, if one remains. Each applicant considers the offer he or she has been holding together with his or her new offer(s) and tentatively accepts the most preferred of these. The applicant rejects any remaining offers –including possibly the one that had been tentatively accepted earlier but is no longer the best offer received.The algorithm ends when no offer is rejected, so that no firm wants to make any additional offers. At that point, each applicant and employer is matched by having each applicant accept whatever offer he or she had most recently tentatively accepted. That is, all acceptances are deferred until the end, when no more offers are forthcomingSo there you have it. That’s the magic algorithm that won Alvin Roth the Nobel Prize. Yeah, I was underwhelmed too. But it’s apparently very clever.The best thing about it is that after you go through these steps there aren’t any applicants and employers that aren’t matched to each other but wish they were. These guys, whenever they exist (after an inferior algorithm is used that allows them to occur) are very destabilizing, because they could potentially get on the phone to each other and bring the whole edifice down, so they have a special name, they are called “blocking pairs.”The proof is as follows: suppose Athan got matched with Merrill but had ranked JP Morgan above Merrill. Well, that’s some tough dudu, because the way the algorithm works it’s clear JP Morgan filled up its analyst class before it got down to Athan, or else Athan would have switched from having tentatively accepted Merrill to accepting JP Morgan during the algorithm. So Athan never got shown JP Morgan, basically.So the JP Morgan / Athan “blocking pair” does not exist and by similar logic neither does any other blocking pair.Sadly, the author does not explain adequately why all’s good if there are no blocking pairs.In particular, the author fails to demonstrate why there’s no point in strategically putting your second choice first if you are not a very strong candidate. He claims this is a nice feature of the algorithm, but if I was applying for a school spot for my kid and I knew this algorithm was being used, I’d still go conservative and put down my second choice first if it was good enough, to make sure I don’t get my third choice. In particular, I suspect the algorithm is not entirely bulletproof and requires a lot of agents on both sides to rank each other honestly. Perhaps I’m wrong but I’d like to see a proof. If you have one, PLEASE PLEASE PLEASE list it below.====> thank you, Nick Argall (see below)Three fantastic chapters follow. One on signaling (example: the peacock’s tail, a long line outside a good restaurant), one on “repugnant” markets in goods or services that we think should not be traded (or, alternatively, not traded for money) and finally a truly exquisite final chapter on what a free market is and what it isn’t. I loved that chapter. It was worth the price of the book, and the pain I endured before I got to it.And then the penny dropped. The guy wrote a meandering 167-page book about the algorithm and the publisher said “can we pad this out, perhaps” and the author added three more chapters he was saving for somewhere else.How do I know? Page 105 the author states that “No companies have yet made a large-scale market for restaurant reservations as I write this in mid-2014,” yet on page 218 of the killer last chapter he discusses booking a restaurant on OpenTable, which was recently sold to Priceline for 2.7 billion dollars and (ask around) has already totally transformed the restaurant business in places like San Francisco, New York and London. Interesting, eh?With all that said, this was a book well worth reading. For the humor, for the large number of awesome quotes (example, page 10 “Decisions that depend on what others are doing are called strategic decisions”) and for forcing me to think.But it would have benefited from another round of editing. Still, this was a good book, if not a great book.

A fascinating look at how markets operate, and the importance of setting up markets that properly match "buyers" and "sellers". An interesting perspective on things we may not normally consider markets, like dating, kidney donations, and hospital residency programs and why properly defining and regulating incentives results in a society where more people are satisfied.

We sometimes have some prejudice with the word market, and sometimes people can't assess its real importance. Much of such bad preconceptions turns to be related to badly designed markets, as this book clearly explains. They are an essential part of everyone's life, and a cornerstone of civilization.The author is very experienced in market designs, and he discusses the many distortions and problems bad designs can produce. It becomes clear how we have no chance of living without markets, how efficient and helpful they can be when well designed, and how complicated it is to desgin good markets sometimes.

Je recommande

If you want to understand markets and matching, this is your foundational resource. Brilliantly written!!!

Es un gran libro, que tanto economistas como no economistas pueden disfrutar. Trata sobre los mercados no convencionales en los que los precios juegan un rol pequeño o nulo, y se centra en los mercados de emparejamiento, como un paciente buscando un donador, un estudiante buscando una universidad, o un empleador buscando a un profesionista. La lectura es sencilla, y el autor explica los conceptos de manera muy intuitiva.

Good story and convincing arguments.