The two questions in the post’s title come up almost every time I tell people what I do. The former is voiced more frequently, but “what the hell is the point” is often just under the surface. In trying to justify my research agenda and field of choice, I frequently cite the contributions of the winners of this year’s Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.* Al Roth and Lloyd Shapley developed the theory of matching markets, and in Roth’s case, for extensive work in applying matching theory to real-world markets.
In the simplest case of a matching market, there are two sides to the market, and every person on one side must match to exactly one person on the other. The classic example, which actually prompted a lot of the development of the field, is the “stable marriage problem”. There are N men and N women, each of a different “quality”. Each man must marry exactly one woman and vice versa. It turns out that under these basic rules, it is possible to find a stable set of marriages – an outcome where there is no pair of men and women who would prefer to dump their current spouses and marry each other instead.
Marriage doesn’t seem much like economics to most people: where is the money and the prices? How is this going to help me pick stocks? The stable marriage problem . First, a more general version of the same problem turns out to describe the matching process between freshly-minted MDs and residency positions. One of Al Roth’s most famous applications of matching was re-designing the National Residency Matching Program, a.k.a. “the match”. The system as currently designed is un-gameable and works amazingly well, a sharp contrast to the near-collapse of the old residency matching process prior to the redesign.
Second, money can indeed be involved (in the matching markets parlance, this is called the transferrable-utility case). The marriage problem, and matching models more generally, can be extended to a case where spouses pay each other off to get more desirable matches. Cynical as this seems, there’s a pretty compelling body of evidence that financial considerations play a strong role in matters of the heart, from marriage to divorce to childbearing. The study of marriage, led also by Gary Becker, was one of the first ways that economists started exploring how market decisions like labor supply are related to non-market activities like getting married.
Third, it highlights the way in which microeconomics has outgrown its origins in understanding prices and quantities of goods traded in a market. One more general framing of economics is that it is the study of how scarce resources are allocated, and how they should be allocated. Residency slots are certainly scarce resources and their allocation is fairly important. These days, economists go even further; I was once in a room full of Ph.D. candidates who said the core of the field was constrained optimization (a mathematical technique). I won’t go that far myself – frankly, I think in many cases people do not optimize – but I think “decisionmaking under constraints” is a reasonable description.
Most of my own research looks at risky sexual behaviors. Unlike most psychologists, or epidemiologists, I approach this as a decisionmaking problem: why do people choose to have unprotected sex, or multiple partners? This is certainly a constrained decision: there are time and monetary costs, and also the cost of a possible HIV infection. Matching is also a critical part of this process – to have sex, you need a partner, and to have risky sex, you need a partner who is willing to go along with that.
Economics was never about picking winners in the stock market, and thanks in no small part to the contributions of Shapley and Roth it’s no longer just about buying and selling goods. Moreover, it’s far from useless: I can’t immediately see how anything I’m working on will be as useful as The Match, but I’m still holding out hope.