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Reciprocal Preferences in Matching Markets

Author

Listed:
  • Timm Opitz

    (Max Planck Institute for Innovation and Competition, LMU Munich)

  • Christoph Schwaiger

    (LMU Munich)

Abstract

Agents with reciprocal preferences prefer to be matched to a partner who also likes to collaborate with them. In this paper, we introduce and formalize reciprocal preferences, apply them to matching markets, and analyze the implications for mechanism design. Formally, the preferences of an agent can depend on the preferences of potential partners and there is incomplete information about the partners’ preferences. We find that there is no stable mechanism in standard two-sided markets. Observing the final allocation of the mechanism enables agents to learn about each other's preferences, leading to instability. However, in a school choice setting with one side of the market being non-strategic, modified versions of the deferred acceptance mechanism can achieve stability. These results provide insights into non-standard preferences in matching markets, and their implications for efficient information and mechanism design.

Suggested Citation

  • Timm Opitz & Christoph Schwaiger, 2023. "Reciprocal Preferences in Matching Markets," Rationality and Competition Discussion Paper Series 388, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:388
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    References listed on IDEAS

    as
    1. Opitz, Timm & Schwaiger, Christoph, 2023. "Everyone Likes to Be Liked: Experimental Evidence from Matching Markets," Rationality and Competition Discussion Paper Series 366, CRC TRR 190 Rationality and Competition.
    2. Julien Grenet & YingHua He & Dorothea Kübler, 2022. "Preference Discovery in University Admissions: The Case for Dynamic Multioffer Mechanisms," Journal of Political Economy, University of Chicago Press, vol. 130(6), pages 1427-1476.
    3. Marcelo Ariel Fernandez & Kirill Rudov & Leeat Yariv, 2022. "Centralized Matching with Incomplete Information," American Economic Review: Insights, American Economic Association, vol. 4(1), pages 18-33, March.
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    11. Bnaya Dreyfuss & Ori Heffetz & Matthew Rabin, 2022. "Expectations-Based Loss Aversion May Help Explain Seemingly Dominated Choices in Strategy-Proof Mechanisms," American Economic Journal: Microeconomics, American Economic Association, vol. 14(4), pages 515-555, November.
    12. Bikhchandani, Sushil, 2017. "Stability with one-sided incomplete information," Journal of Economic Theory, Elsevier, vol. 168(C), pages 372-399.
    13. Christopher Avery & Jonathan Levin, 2010. "Early Admissions at Selective Colleges," American Economic Review, American Economic Association, vol. 100(5), pages 2125-2156, December.
    14. Emiliya Lazarova & Dinko Dimitrov, 2017. "Paths to stability in two-sided matching under uncertainty," International Journal of Game Theory, Springer;Game Theory Society, vol. 46(1), pages 29-49, March.
    15. Meisner, Vincent & von Wangenheim, Jonas, 2023. "Loss aversion in strategy-proof school-choice mechanisms," Journal of Economic Theory, Elsevier, vol. 207(C).
    16. Fernandez, Marcelo Ariel, 2018. "Deferred acceptance and regret-free truth-telling," Economics Working Paper Archive 65832, The Johns Hopkins University,Department of Economics, revised 31 Jul 2020.
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    More about this item

    Keywords

    market design; matching; reciprocal preferences; non-standard preferences; gale-shapley deferred acceptance mechanism; incomplete information;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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