Prediction and Congestion in Two-Sided Markets: Economist versus Machine Matchmakers

27 Pages Posted: 31 Jan 2019 Last revised: 4 Mar 2019

See all articles by Kuan-Ming Chen

Kuan-Ming Chen

University of Chicago - Department of Economics

Yu-Wei Hsieh

University of Southern California - Department of Economics; USC Dornsife Institute for New Economic Thinking

Ming-Jen Lin

National Taiwan University - Department of Economics

Date Written: March 3, 2019

Abstract

We study the recommender systems on the two-sided platforms. We find that the machine-learning algorithms create congestion: they often generate recommendations that are concentrated on a few users. We propose equilibrium machine-learning algorithms: they inherit the predicting power from machine-learning and solve the congestion problem by the market allocation mechanism in economics. We apply our recommenders to an online dating service that contains over 490,000 unique users. The hit rate of our equilibrium recommender outperforms the baseline content filtering by a factor of 19. In the counterfactual simulations, it accelerates the matching process by 200%.

Keywords: Online Dating, Two-Sided Matching, Recommender Systems, Matrix Factorization, Machine Learning, Reciprocal Recommender, Collaborative Filtering

JEL Classification: C53, C78, L81

Suggested Citation

Chen, Kuan-Ming and Hsieh, Yu-Wei and Lin, Ming-Jen, Prediction and Congestion in Two-Sided Markets: Economist versus Machine Matchmakers (March 3, 2019). Available at SSRN: https://ssrn.com/abstract=3318778 or http://dx.doi.org/10.2139/ssrn.3318778

Kuan-Ming Chen

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Yu-Wei Hsieh (Contact Author)

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States

USC Dornsife Institute for New Economic Thinking ( email )

3620 S. Vermont Avenue, KAP 364F
Los Angeles, CA 90089-0253
United States

Ming-Jen Lin

National Taiwan University - Department of Economics ( email )

21 Hsiu Chow Rd
Taipei, 10020
Taiwan

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