Notes on "Who Gets What — and Why" by Alvin E. Roth

December 04, 2017


TODO: Find podcasts that talked about the explosion of bakeries in new york, and the podcast about the food donation market

TODO: Thoughts on student assignments see pg 33

Miscellaneous Quotes

pg 4 Economics is about the efficient allocation of scarce resources, and about making resources less scarce.

pg. 4 Notice that none of these things -- kidnesys, places in competitive schools, sought -after jobs -- can be acquired by the person willing to pay the most or work for the lowest wage. In each case, a match must be made.

pg 5 Even if matches are made in heaven, they are found in market-places

pg. 5 Commodity markets, in which prices alone determine who gets what.

pg 5 The price does all the work, bringing the two of you together at the prices at which supply equals demand.

pg 5 Matching markets, prices don't work that way.

pg 6 each is a two-sided matching market that involves searching and wooing on both sides. A market involves matching whenever prices isn't the only determinant of who gets what.

pg 6 scarce resources must be allocated by some kind of matchign process.

pg 7 The rules make the sport safe enough to attract competitors but don't dictate the outcome.

pg 8 Having a lot of participants makes a market thick

To kep markets thick often concerns the timing of transactions. When should offers be made? How long should they be left open?

pg 9 but in matching markets, each transaction may have to be considered separately, as in job markets, in which each candidate has to be evaluated individually

pg 9 Although it's great to have a marketplace that gives you an abundance of opportunitites, these may be illusory if you can't evaluate them, and they can cause the market to lose much of its usefulness

congestion has set in, and that can make it impossible for participants to identify the most promising alternatives the market has to offer.

pg 10 What often makes matching markets especially challenging is that everyone has to puzzle through not only their own desires but also those of everyone else and how all those other market participants might act to achieve their preferences.

pg 10 Decisions that depend on what others are doing are called strategic decisions and are the concern of the branch of economics called game theory.

pg 11 Sometimes the goal of the market designer is to reduce the need to game the system, allowing choosers to concentrate on identifying their true needs and desires. Other times the goal is to ensure that even if some gaming is inevitable, the market can still work freely. A good marketplace makes participation safe and simple.

pg 12. Repugnance shows with particular clarity what all markets revel: peoples values, desires, and beliefs.

pg 13. What do you know when you see a green plant in the desert? he asked. I hook my head, and he exclaimed: "Its's poison! Otherwise something would have eaten it by now

pg 16 Commodifying wheat via a reliable grading system helped make the market safe.

pg 17 Turning a market into a commodity market helps make it really thick, because any buy ca buy from any seller, and any seller can sell to any buyer.

pg 19 Notice the tension between commoditization and product differentiation— that is, between wanting to sell in a thick market to buyers even if they don't care who you are, and trying to make your product special enough that many buyers will care enough about you to seek you out.

pg 19 The distinction between perfectly anonymous commodity markets and relationship specific matching markets its't a thin bright line. Rather, there are markets at different points along a spectrum from pure commodity to pure matching.

pg 26 To put it another way, we pay a cost for the convenience of using a middleman

pg 26 Competition can take many forms

pg 31 about how market design has to solve problems related to incentives, thickness, congestion and timing, and how some kinds of transactions can be widely seen as repugnant.

Markets and marketplaces come in many forms, some of which don't conform to conventional notions of markets, and some in which money may play little or no role.

pg 32 the invention of money was a market design solution that overcame a more problem that severely limited barter, namely the need to find someone who both has what you want and wants what you havel. Money easer the need to find the "double coincidence" with money in the market, it's enough to find someone who has what you want

pg 32 Game theorists try to put themselves in the shoes of market participants to underwent how they might use the strategies that are available to them.

pg 33 How can people trade indivisible good if everyone needs just one, has one to trade, and can't use money?

pg 33 set of cyclical trades they called top trading cycles, with the property that no group of patients and donors could got off on their own and find a cycle of trades that they liked better

pg 37 information is essential to finding the best set of exchanges

pg 38 Withholding easy-to-match exchanges is a common temptation in markets with middlemen

pg 49 I'm not thinking of politics as a dirty word, only that when you are dealing with a multibillion-dollar industry, like the care of kidney disease, there are institutional and career interests at play, and they react slowly and cautiously to new technological and organizational possibilities.

pg 50 The harsh reality is that hospitals have trouble coordinating with one another because they're also competing for patients.

pg 51 But as I've tried to show, market design for kidney exchange is still about making the market this, uncontested, safe and simple, and efficient.

pg 52 The general lesson to keep in mind as we look at more usual markets is that not only do marketplaces have to solve the problems of creating a thick market, managing congestion, and ensuring that participation is safe and simple, but they also have to keep solving and resolving these problems as markets evolve.

pg 57. Part of making a market thick involves finding a time at which lots of people will participate at the same time.

pg 60 Thats one of the dancers associated with early transactions: they can come well before important information is available. And that can mean bad matches made and good ones missed

pg 66 The market for new layers lets us see how unraveling can sometimes hurt everyone

pg 67 exploding offers are common in unraveled markets. These offers are both early and short-lived

pg 67 in that situation nobody has enough information to make an optimal decision.

pg 74 The fear of being left behind is part of what turned pioneers into Sooner.s

pg 74 So unraveling is hard to control in a market that relies on self-control. Even if you have a lot of self-control, all you need is the suspicion that other participants might jump the gun and you will do so, too.

pg 111 Matching markets often have to deal with congestion, since each offer isn't just a set of terms, it's apropos of a match to particular counterpart… in matching markets, some offers have to wait for decisions of others.

pg 112. the key to such a clearinghouse is making it safe for people to state their preferences honestly.

pg 114. Prosaic risks

pg 116 Both safety and reliability fit under the general heading of making a market trustworthy.

pg 118 Markets depend on reliable information. In the case of reputation, buyers want reliable information about a seller, in the form of information about other buyers experiences.

pg 118 Ehen eBay made it safer to reveal dissatisfaction, the information about sellers became more detailed and useful

pg 120 In eBay auctions, many bidders feel it's too risky to reveal early how much they're willing to pay.

pg 125 Effective access to good public schools is widely viewed by economists and urban planners as a key to keeping cities healthy.

pg 125 Strategizing like this can seem natural,. I mentioned this before when we talked about unraveling, about having to make decisions early.

pg 139 If a suggested matching isn't stable — that is, if there exists at least one applicant and employer who aren't matched to each other but would prefer to be — this unsatisfied pair is called a blocking pair. A matching is called unstable if there are any blocking pairs, since the members of a blocking pair can block the proposed unstable matching by instead making a match with each other.

pg 141 deferred acceptance algorithm

pg 148 Roth-Peranson algorithm

pg 149 Rual Hospitals Theorem

pg 166 School choice systems, even if they are efficient, simple and safe, don't solve the problems created by not having enough good schools. They are at best a Band-Aid applied to those persistent problems, by letting existing schools be used more efficiently.

pg 170 So signals, and how to send them, can be an integral part of a markets design

ph 173 Signals sent deliberately may convey different information than signals sent in passing.

pg 173 Shaping high school activities to colleges demands is not necessarily a bad thing; it's a lot like choosing your college major based on what employers value. But it does change the meaning of the signal.

pg 173 Going to college and doing well signals not only what the job applicant may have learned but also that he or she is good at learning things. That's a valuable skill in itself for just about any demanding job.

pg 179 Markets work best when they allow both kinds of information to be reliably transmitted.

pg 179 It helps to be able to signal not only how desirable you are but also how interested.

pg 181 But there's an ancient method of signaling in which the cost of the signals to the signaler is exactly equal to the benefit to the recipient. I'm speaking of auctions, in which the high bid not only signals how goods should be allocated but also pays the seller of the goods.

pg 185 Dutch auction

pg 184 Descending bid auction

pg 185 It's true value is unknown until the bidding stops. That's why one of the ancient uses of auctions is called price discovery. Auctions are matching markets that match sellers with the buyers who most value what is being sold.

pg 188 Simultaneous ascending auctions with activity rules enabled many bidders to compete simultaneously

pg 190 The business model that makes Google one of the most valuable companies in the world involves running auctions for words typed into its search engine.

pg 196 Lets call a transaction repugnant if some people want to engage in it and other people don't want them to.

Economists say transaction have "negative externalities" if they harm people who aren't party to the transactions

I'll reserve the word repugnant for transactions that some people want to engage in an that are objected to by people who may not themselves experience any direct harm.

pg 200 Remember that TIME is Money, but it also includes the parallel advice "remember that CREDIT is Money"

pg 202 All these examples make clear that some kinds of transaction are repugnant in some places but not in others, and that repugnance can shift over time. Repugnance is very much in the eye of the beholder and the beholder is observing tother people's transactions. This make repugnance hard to predict, let alone prescribe.

pg 203 Once concert is objectification, the fear that the act of putting a price on certain things and then buying or selling them might move them into a class of impersonal objects to which they should not belong. That is, they risk losing their moral value.

pg 203 Another fear is coercion, that substantial monetary payments might prove coercive and leaver pooper people open to exploitation

pg 204 Slippery slope toward a less sympathetic society than we would like to live in.

pg 206 "Its is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest."

pg 212 The fact that laws banning various markets are so widespread means that we can't ignore repugnance as a constraint on markets.

pg 212 Nevertheless banning markets is just one way of trying to control them, and preventing markets is easier legislated than done. Making a market illegal stops legal markets. The markets we try to ban, repugnant markets, are precisely those that some people willingly take part in despite others' opposition.

pg 222 Some laws provide the substructure for the design of many markets.

pg 226 "There is, in particular, all the difference between deliberately creating a system within which competition will work as beneficially as possible and passively accepting institutions as they are" He understood that markets need effective rules in order to work freely.

pg 227 Markets that function well give us choices, and so markets that operate freely are related to our liberty as well as to our prosperity.

pg 228 And markets are like languages. Both are ancient human inventions. Both are tools we use to organize ourselves, to cooperate and coordinate and compete with one another, and ultimately to figure out who gets what.

pg 231 Markets are human artifacts, not natural phenomena. Market design gives us a chance to maintain and improve some of humanity's most ancient, essential inventions.

Matthew Clemens © 2022