Reciprocal Preferences in Matching Markets
Max Planck Institute for Innovation & Competition Research Paper No. 23-06
CRC TRR 190 Discussion Paper Series No. 388
31 Pages Posted: 27 Feb 2023 Last revised: 21 Apr 2023
Date Written: February 21, 2023
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.
Keywords: Market Design, Matching, Reciprocal Preferences, Non-standard Preferences, Gale-Shapley Deferred Acceptance Mechanism, Incomplete Information
JEL Classification: C78, D47, D82, D83, D91
Suggested Citation: Suggested Citation