Market Design, Human Behavior, and Management

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. This paper was accepted by David Simchi-Levi, Special Issue of Management Science: 65th Anniversary.

The i-frame and the s-frame: How focusing on individual-level solutions has led behavioral public policy astray

“…Economic design frequently addresses cognitive limitations and considerations that go beyond financial gain and economic efficiency, such as privacy, fairness, and regret aversion. Exciting work at the intersection of economic design, computer science, and behavioral sciencesometimes involving human subject experiments to test market innovations (Chen et al, 2021;Ockenfels, 2009;Roth, 2008Roth, , 2013 attests to the complementarities between economic design and behavioral science (e.g., Bergemann, Breuer, Cramton, Hirsch & Ockenfels, 2023;Bichler, Ewert, & Ockenfels, 2023;Kearns & Roth, 2019;Meta Fundamental AI Research Diplomacy Team (FAIR) et al, 2022).…”

Market design, economic efficiency, and game theory for spectrum auctions

“…3 Koop and Lodge (2017). 4 See Chen et al (2021) for a survey of market design research in online auctions, spectrum auctions, financial markets, online feedback systems, and matching in education and labour markets.…”

Fixing feedback revision rules in online markets

“…We contribute to a growing theoretical, experimental, and empirical literature on reputation building and the market design of feedback systems. A quickly increasing number of studies investigate the role of feedback systems for trader cooperation and market efficiency (see Chen et al, 2021; Tadelis, 2016; for surveys). Yet, much less attention has been given to the design of online market conflict resolution mechanisms.…”