Who Gets What – and Why Summary

“What makes a market work well—and what makes it fail?” Alvin Roth’s Who Gets What – and Why explores this question by uncovering the hidden forces behind matching markets in our everyday lives.

1. Not All Markets Are About Money

Markets extend beyond just prices and commodities. A market exists wherever goods, services, or opportunities are exchanged. However, not all markets rely solely on money to function.

Matching markets consist of cases where money isn’t always the decisive factor. Take the job market, for example. While salaries matter, the process also depends on whether the employer selects a candidate and whether the candidate chooses the employer. Similarly, when selecting a school, acceptance hinges on mutual interest.

Matching markets become even more important where prices cannot dictate access—like kidney transplants or public schooling. In these situations, decisions are influenced by priorities, preferences, or ethics rather than monetary value.

Examples

• Public school choice often depends on factors like proximity and rankings.
• Organ transplants require a match based on compatibility, not money.
• University applications hinge on both student qualifications and institutional choices.

2. Market Congestion Slows Exchanges

A market’s success depends on its “thickness,” or how many participants it has. More participants usually improve the options, but excess involvement can clog the system.

Congestion arises when participants must individually evaluate every opportunity. For example, the job market can experience delays when employers spend too much time filtering through countless applicants. Similarly, dating apps overwhelm users with a surplus of options that require thoughtful sorting.

Technology has mitigated some of these problems. Tools like Uber have helped “thicken” their market while keeping it fast. By connecting nearby drivers and riders instantly, Uber resolves congestion and ensures users find a match more efficiently.

Examples

• Uber’s app transformed the transportation market by reducing idle time for vehicles.
• The rise of dating apps addresses congestion by suggesting compatible matches quickly.
• Online property platforms simplify home-hunting by organizing listings using filters.

3. Gaming the System Harms Fairness

In matching markets, people often try to gain an advantage by bending unspoken rules, which can lead to inefficiencies and unfair practices.

Consider the legal profession in the U.S., where law firms make early job offers to candidates. These “exploding offers” put undue pressure on students to decide fast. Firms, meanwhile, hire without knowing the candidate’s final-year performance. This system undermines fairness and prevents optimal matches.

Attempts to reform these broken systems often backfire. For instance, when rule changes delayed hiring for legal summer programs, firms still found ways around them, continuing early recruitment practices that penalized students who waited.

Examples

• Law firms making job offers years before graduation illustrates market manipulation.
• Historically, mismatches occurred when students hid true preferences in school applications.
• Unregulated college admissions in certain countries exacerbate inequality among candidates.

4. Communication Gaps Create Inefficiencies

Shared information is key for efficiency in markets. Incomplete or inaccurate details often lead to missed opportunities or poor decisions.

Before 2003, New York City public schools operated in a chaotic system marked by miscommunication. Parents trying to game the process led to biases, while schools held back decisions to keep their options open. The result? Inequalities for students and delays in finalizing curriculums.

Introducing a centralized computerized platform drastically improved transparency. By asking participants to rank schools honestly, the system reduced manipulation and achieved better matches for students and schools.

Examples

• NYC schools improved matches with an algorithm that promoted open rankings.
• Employers leveraging structured online hiring portals enhance matching efficiencies.
• Online dating platforms use algorithms to reduce evaluation time by incorporating preferences.

5. Technology Gives Markets an Edge

The rapid spread of smartphones and web applications has transformed how markets operate, often speeding up matches and improving efficiency.

In contrast to pre-Uber taxi systems, where wait times were lengthy, tech companies now facilitate smoother transactions. Apps use algorithms to match supply and demand quickly. By connecting users efficiently, these tools create convenience, even in traditionally congested markets.

Technology also allows participants to interact remotely. College applications are now centralized through web platforms like the Common App, which simplify processes for both students and administrators.

Examples

• Centralized college platforms let students apply to multiple institutions seamlessly.
• Uber revolutionized transportation by matching cars and users in record time.
• E-commerce websites like Amazon optimize instant price comparisons and quick buys.

6. Poor Design Wastes Resources

When markets lack clear structures, both buyers and sellers may encounter lost opportunities or inefficient outcomes. Design is key.

For example, without effective matching in organ donation systems, compatible donors and recipients may never connect. Smart systems optimize scarce resources, as shown by kidney-matching registries connecting patients with donors based on shared data.

Proper design thrives on trust. Markets like Airbnb function because users believe in fair treatment and transparent reviews. Without these elements, participants shy away from engaging.

Examples

• Kidney-sharing programs prioritize compatibility for better health outcomes.
• Ride-share platforms organize users’ searches to prevent idle resources.
• Airbnb’s balanced review system ensures mutually beneficial stays.

7. Information Overload Can Backfire

As communication improves, excess information sometimes hampers decisions rather than accelerating them. Too many choices lead to indecision.

When college applications became digitalized in the U.S., students began applying to dozens of schools. However, this shift made it harder for colleges to estimate genuine student interest, adding to the complexity of admissions.

Countries like South Korea address overload by limiting applications directly. While this restricts options, it provides clarity for participants and ensures genuine intent from applicants.

Examples

• U.S. colleges face difficulty judging interest from bulk applications.
• South Korea’s exam-day approach prevents students from over-complicating choices.
• Overwhelming numbers on dating platforms contribute to decision paralysis.

8. Honest Communication Solves Mismatches

Incentives for honest communication help poor-performing markets recover by reducing manipulative behavior and ensuring fair outcomes.

The NYC school system succeeded once participants realized dishonesty could no longer benefit them. Transparency in ranking schools helped reduce mismatches and encouraged families to participate in the process fairly.

Other systems, like job platforms, also encourage honesty by aligning stated preferences with algorithm-driven outcomes. Participants benefit from sharing personal priorities without fear of penalty.

Examples

• Schools gained functionality once families submitted truthful rankings.
• Dating sites reward users for accurate profiles and improve matches.
• Transparent pricing in hotel apps allows travelers to choose confidently.

9. Signals Matter in Market Congestion

Sometimes, signaling plays a huge role in clarifying intent. Limited opportunities force participants to reveal preferences explicitly, sorting matches better.

For instance, universities in the U.S. use early decision applications as a signal. Students committing to attend if accepted improve their likelihood of admission. This system highlights strong mutual interest and clears up confusion about intent.

Such signals are also common in job markets. Resumes featuring certifications like “CPA” express an applicant’s skill level and commitment, allowing employers to narrow their focus.

Examples

• Early decision boosts selection chances due to demonstrated commitment.
• Professional certifications minimize hiring guesswork.
• Exams in South Korea serve as reliable indicators of college application intent.

Takeaways

1. Use technology to streamline markets where communication and clarity are obstacles. Apps and digital platforms can reduce congestion and improve decision-making.
2. Adopt clear signaling mechanisms in any market process by creating ways to express intent explicitly, such as early admissions or pre-certifications.
3. Encourage transparency in matching systems. Design processes where honesty drives better outcomes for all participants.