Friday, August 25, 2006

Economic Applications: Asymmetrical information and dating:

As I mentioned in my syllabus, economics has broad applications that are not narrowly focused on money. One example of this is in today’s WSJ, you can view the article here if you have a subscription. http://online.wsj.com/article/SB115646646975445112.html?mod=todays_us_nonsub_page_one

One of the first models we will learn is the model of perfect competition. In order for this model to work, however, certain conditions must hold. One condition that is sometimes not met easily in the real word is the condition of “perfect information.” That is, both the buyers and sellers in the market place must have all relevant information about the transaction. If not, then complications will arise. What may be less clear is that this type of market problem—technically called asymmetrical information—has applications for online dating.

These days, Mr. Schwarz is thinking about how to use economics to save attractive women from unwanted solicitations on an Internet dating site

Dating is a classic example of how people attempt to solve “asymmetrical information” When we first meet someone we are attracted to, we do not (usually) jump right into a relationship but rather meet various times (data) in order to obtain the relevant information we need to decide whether to date someone or not. Online dating presents a particular problem, especially for women, because the information tends to be tilted towards the guy requesting to talk/meet with the women. That is, the guy has all the relevant information he needs to at least go on a date—I am attracted to her—but certain types of women tend to attract more requests than others. What’s worse is that they have no real way to weed through all the requests and decide which ones to pursue further. What if one guy that looks like a possibility is only looking for a one night stand and has requested close to 200 women to see who responds? Hence, there is an information problem (which is why in my experience online dating tends not to work great, although clearly there are exceptions).

Here is how Schwarz attempts to solve the problem:

One idea employs the concept of "scarcity," rationing the number of free messages each lothario can send. Another uses full disclosure, by displaying how many people a suitor has already approached

As you can see, economics can be used to help improve online dating!

Note: for further discussion on this topic, take a look at www.marginalrevolution.com

1 comment:

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