Tuesday, June 2, 2020

Market Design, Human Behavior, and Management, by Chen, Cramton, List and Ockenfels

Here is a sweeping review of some of the highlights of market design, notable for its attention to the role of experiments.

Market Design, Human Behavior, and Management
Yan Chen, Peter Cramton, John A. List, Axel Ockenfels
NBER Working Paper No. 26873
Issued in March 2020

Abstract: We review past research and discuss future directions on how the vibrant research areas of market design and behavioral economics have influenced and will continue to impact the science and practice of management in both the private and public sectors. Using examples from various auction markets, reputation and feedback systems in online markets, matching markets in education, and labor markets, we demonstrate that combining market design theory, behavioral insights, and experimental methods can lead to fruitful implementation of superior market designs in practice.

And here's their concluding paragraph:

Many opportunities and challenges in market design have to do with recent advances in computer and communication technology, which often allow for radical innovation in market design. Indeed, smart markets are popping up everywhere, from new kidney exchanges, dating, job and ride hailing markets, ad and spectrum auctions, to innovative climate, electricity and financial markets. The development of these markets not only creates new business opportunities to benefit our social and economic lives, but also improve our scientific understanding of engineering incentives and markets.There is probably no other field in economics and management science, where researchers and practitioners gain so much by carefully listening to and working with one another. In this spirit, perhaps the most foundational change for generation of knowledge is that researchers will increasingly have to use the carpool lane in their own work, for riding alone will soon be an  inefficient choice in the knowledge production game

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