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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
    as

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    References listed on IDEAS

    as
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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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