Information Acquisition in Matching Markets: The Role of Price Discovery

65 Pages Posted: 23 Nov 2020

See all articles by Nicole Immorlica

Nicole Immorlica

Microsoft Research

Jacob Leshno

Chicago Booth

Irene Lo

Stanford

Brendan Lucier

Microsoft Research

Date Written: October 5, 2020

Abstract

We explore the acquisition and flow of information in matching markets through a model of college admissions with endogenous costly information acquisition. We extend the notion of stability to this partial information setting, and introduce regret-free stability as a refinement that additionally requires optimal student information acquisition. We show regret-free stable outcomes exist, and finding them is equivalent to finding appropriately-defined market-clearing cutoffs.

To understand information flows, we recast matching mechanisms as price-discovery processes. No mechanism guarantees a regret-free stable outcome, because information deadlocks imply some students must acquire information sub optimally. Our analysis suggests approaches for facilitating efficient price discovery, leveraging historical information or market sub-samples to estimate cutoffs. We show that mechanisms that use such methods to advise applicants on their admission chances yield approximately regret-free stable outcomes. A survey of university admission systems highlights the practical importance of providing applicants with information about their admission chances.

Keywords: matching, information acquisition

JEL Classification: D47, D83

Suggested Citation

Immorlica, Nicole and Leshno, Jacob and Lo, Irene and Lucier, Brendan, Information Acquisition in Matching Markets: The Role of Price Discovery (October 5, 2020). Available at SSRN: https://ssrn.com/abstract=3705049 or http://dx.doi.org/10.2139/ssrn.3705049

Nicole Immorlica

Microsoft Research ( email )

One Memorial Drive, 14th Floor
Cambridge, MA 02142
United States

Jacob Leshno (Contact Author)

Chicago Booth ( email )

5807 S. Woodlawn Ave
Chicago, IL 60610
United States

Irene Lo

Stanford ( email )

United States

Brendan Lucier

Microsoft Research ( email )

One Memorial Drive, 14th Floor
Cambridge, MA 02142
United States

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