Saturday, May 23, 2015

Ali Hortaçsu talks to the Turkish American Scientists & Scholars Association about market design

A Conversation with Ali Hortaçsu

"Our guest on this issue of The Bridge is Ali Hortacsu, Ralph and Mary Otis Isham Professor of Economics, University of Chicago.

The Bridge : Could you please give us a brief summary of your background?

Ali Hortaçsu : I was born in Istanbul in 1974 and grew up near Boğaziçi University where my parents are (emeritus) professors of chemical engineering. I went to Robert College for secondary school, and attended Stanford University, where I got my B.S. and M.S. in Electrical Engineering and my Ph.D. in Economics. I joined the University of Chicago Department of Economics as an assistant professor in 2001. I am currently the Ralph and Mary Otis Isham Professor of Economics there.

T.B. :  Could you also summarize your studies/research?  

A. H. : Most of my research falls under the rubric of "market design." Most economists believe markets are a wonderful method of allocating scarce resources and facilitating exchange. However, we know of many conditions under which markets can fail miserably; especially when market participants have incentives to strategize around the stated rules of the marketplace. What is needed, then, is a well-thought out re-writing of the "rules of the game" that takes into account the fact that many market participants are highly rational, strategic actors who will understand and game the system. How should we go about designing such rules? There is now an elegant and extremely well established body of theoretical knowledge on this topic, starting e.g. with the work of my Nobel winning colleague Roger Myerson. What we have learned over time, however, is that theory does not always give sharp answers as to what to do; the specific parameters of the particular system we are analyzing matters a lot. What I have tried to advance in my research is a "data driven" approach to market design, in which we utilize very detailed data from existing markets, estimate the relevant parameters using econometric/statistical methods, and simulate the parametrized behavior under a slew of alternative market rules to arrive at improved market designs. My collaborators and I have utilized this framework to help guide the design of many real world markets, including electricity markets, financial markets, online auctions, and even Internet matchmaking sites. I am also happy to see the econometric and simulation methods I have developed being used in many exciting applications in this domain.

T.B. :   Where do you see studies of your area of specialty in Turkey? What are your suggestions to improve the research in Turkey in this area?

A. H. :  "Market design" has a long and distinguished history in Turkey, especially with the theoretical work of Murat Sertel, Ahmet Alkan, and Semih Koray. Tayfun Sönmez and Utku Ünver, who are also pioneers in this area, did much of their trailblazing research while they were colleagues at Koç University. Although the tradition of market design research is very strong in Turkey, I think improving collaborations between theoretical researchers and market operators would be very beneficial from both the applied and scientific point of views."

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