Arranging to deliver the ransom for the Ukranian ship captured by Somali pirates, and to receive the ship and hostage crew in return is a delicate matter without a legal framework to reduce the counterparty risk (sort of like a drug buy):

More from market-design guru Al Roth’s new blog.

Categories: Business and Economics, Governance, Matching Mechanisms
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American Express recently sent me an e-mail with this offer:

From June 2-12, 2008, there will be one U.S. destination on sale each weekday, with some packages retailing below $3,500. Once on sale, the price of each package drops every 20 minutes. So when the price seems right, you better grab yours before it’s gone. Visit the website now to check out in-depth trip details and photos, and to sign up to receive an e-mail reminder for when the trips you want go on sale.

It looks like they’re selling the vacation packages using an Open Descending Bid Auction, also known as a Dutch Auction.  If we think back to our Auction Theory, this should give us the same result as a Sealed-Bid First Price auction, but American Express has an excellent opportunity to test whether or not that holds in a real world environment.  From a behavioral perspective, in the real world and not a laboratory, will bidders react the same way in both situations?  My hunch is no, but I don’t have data to back it up – could my readers who still have unfettered access to academic journals find some?

Dutch Auctions are currently used by the Federal Reserve Bank of New York, Dutch Flower Merchants, and a variant was used for Google’s original IPO.

Categories: Behavioral Economics, Business and Economics, Incentive Centered Design, Information Economics, Matching Mechanisms, Travel
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According to the scientists at Predictably Irrational:

Finally, we wondered how less attractive individuals rationalized to themselves, their selection of less attractive others. Using a speed-dating study we found that more attractive people placed more weight on physical attractiveness in selecting their dates, while less attractive people placed more weight on other qualities e.g. sense of humor. Much like the famous line from Crosby, Stills, Nash, and Young, people find a way to love the ones they can be with.

My takeaway – ugly people have the same definition of attractive as hot people. They know they can’t get hot people, so they value hotness less, and therefore say they care about personality more. In other words, people care about personality because they have to, or at least because they think they have to.

Categories: Behavioral Economics, Dating, Information Asymmetries, Matching Mechanisms
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The Wall Street Journal has a front page article on transplant matching mechanisms along with this cool diagram. It also covers the debate between economists over whether markets or trading cycles are the most efficient and morally palatable method to get the right kidneys to the right people.

Via MR

Categories: Behavioral Economics, Business and Economics, Distribution, Incentive Centered Design, Matching Mechanisms
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New York Magazine has an excellent piece on organizational psychology, fitting the right personalities with the right roles, and what makes managers successful. One nugget:

In the same vein, another researcher reports that one law firm deconstructs its HR needs by personality traits. It insists on extremely bright employees who are also extremely insecure. “They want them to think that working really hard matters,” he explains.

Here’s the short version: managers shouldn’t be narcissistic assholes, except when they should.

As an aside, New York Magazine seems to have one or two awesome pieces a month, and then the rest is only OK. Once they get up to 3 or 4, I’m going to become a regular reader (and maybe a subscriber).

Categories: Business and Economics, Careers, Employee Engagement, Law, Managing, Matching Mechanisms
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Joanna Jacobs passes along Barry Schwartz’s recommendation that elite universities use a lottery for admissions (I couldn’t find the whole article):

There is probably a right answer to the questions “Whom should we admit?” or “Which college should I select?” But we won’t know until after the fact. Chance factors (roommate assignment, romantic successes or failures, or which English professor evaluates your first papers) might have a bigger effect on success and satisfaction than the tiny differences among applicants (or schools) within the range of acceptability. So once a set of “good enough” students or “good enough” schools has been identified, it probably doesn’t matter much which one you choose; or if it does matter, there is no way to know in advance what the right choice is.

College admissions is a crap shoot, and anyone who tells you otherwise is lying. Let colleges admit the all-stars, reject the losers, and show the people in the middle just how much randomness is involved. As long as students are using the Common Application to apply to multiple schools, though, the application becomes even more like a lotto ticket. Is this applicant applying to Cornell to hedge in case they don’t get into Columbia, or do they really want to go there?

The solution? Use a bidding market. Give each student who fills out the common application 1000 points and allow them to allocate them among schools they apply to. Weight students in the lottery based on the number of points they bid, so that students who bid more get more of a chance. People will still get into college – being in the “middle” group of Harvard applicants still makes you in the top group of many other great schools.

Bidding systems solve another problem as well. A friend of mine used to work in an admissions office, and she said they would look at other schools a candidate applied to and reject those who seemed highly qualified and applied to top tier schools because the office thought they weren’t likely to accept the admissions offer in the first place. Restricting the number of bidding points lets universities measure not only a student’s binary desire to attend signaled by applying (yes/no), but also the strength of their desire to attend the school (number of points bid).

Most people overestimate the role of going to a good college on life outcomes. They also overestimate how good admissions offices are at picking which people get in and which don’t. Exposing just how random it is, as Schwartz notes, will expose just how much “luck” is involved. Does that mean that a Harvard student and a Community College student are on the same intellectual level? Doubtful, but it will show the Princeton student that they could just as easily be at Duke, if only the lottery had been different.

Categories: Education, Incentive Centered Design, Information Economics, Information Markets, Matching Mechanisms, The Academy
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The not-so-weekly Equation of the Week returns with a formula for determining whether or not a person will engage in prostitution:

[(δU/δL) / (δU/δC) | Sp=0] ≤ w – [(δU/δr) / (δU/δC) | S = 0]

Where U=utility, L=leisure, C=goods and services consumed, S=quantity of prostitution sold, w=wage for prostitutes, and r=your reputation.

In other words:

An individual will start to sell prostitution if the price for selling the first amount of prostitution, minus the costs of a worsened reputation for doing so, exceeds the shadow price of leisure evaluated at zero prostitution sold.

Reputation, or more broadly social costs, may be one thing that individuals consider when selecting a profession, but to say it’s the only thing?

The full paper is here, via this Improbable Research Column.

Categories: Business and Economics, Careers, Dating, Equation of the Week, Funny, Incentive Centered Design, Matching Mechanisms
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When I interviewed 1,000 people for What Should I Do With My Life?, it was plainly apparent that so many of our smartest college students from our best schools are actually very risk averse. Coming out of college, they took jobs where the “track to success” was spelled out and clear. Wall Street, law school, corporate America – there was no imagination or creativity in these choices. And nothing daring about it. Ten years later, many of them were unhappy and unfulfilled. But quitting – even though they had lots of money in the bank – was absolutely terrifying to them. The loss of status scared them; the idea of jumping off a track and freestyling their career was frightening. They didn’t want to look not smart. They were afraid of taking a job that didn’t broadcast to the world how smart they must be to have that job.

Po Bronson and Ashley Merryman’s blog has some great posts about self esteem (start with that one, then look more recent) and the insane science and practice around promoting it.

I’m also shocked with the risk aversion among my peers, but it gets worse than Po sees. So many people graduate college and skip the job search because they fear getting rejected, or don’t apply to graduate school because they think they need more experience. The worst thing that happens – they say no and you try again in a few years. What I worry about the most, though, is the tendency for people not to pursue a career because they might not like it, so instead they languish in jobs they already know they don’t like. The best way to find out if you like a job? Try it! It’s OK to quit and try something else, but they are so afraid of success, or of leaving, they don’t even give real employment a chance.

Categories: Careers, Education, Graduate School, Matching Mechanisms
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BusinessWeek.com looks at unmet expectations in summer internships:

The largest areas of disappointment for “decliners” were related to job content and manager behavior, Scott says. The study’s conclusion is that interns’ assignment managers are the “deal makers/breakers” in whether a student will accept a full-time job, “because they themselves model ‘what’s it’s really like’ to work for the company.”

Conversations with recent student interns reinforce the idea that they come into interships with high expectations. “I want to feel worthy, that I’m not just an intern. I want to show what I can do, what I’ve learned over the past four years,” says Chelsea Culver, a senior at the University of Washington Business School and an intern at H2 Marketing in Seattle. (For more students’ views of internship expectations and reality, see the slide show.)

Categories: Business and Economics, Careers, Education, Matching Mechanisms
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The Headhunter (who commented on my blog here!) has a blog of his own, where his latest post outlines his interview strategy:

No one can fake a discussion about the work that needs to be done. Either you can demonstrate motivation, enthusiasm and smarts, or you can’t. To me, that’s what a job interview is all about.

Consulting firms have used these case interviews for years, though they often meander outside the realm of “can you do the job” and into the realm of brain teasers.  I’m not sure who ever came up with the behavioral interview, but it was one of the most annoying parts of my job search, to the point where I didn’t participate in a single one this past year.  The worst was when an unnamed manufacturing company started asking me questions about my experience doing something completely unrelated to the open position they had just described.

Categories: Business and Economics, Careers, Matching Mechanisms, Strategy
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Prudie has gotten interesting again, tackling a number of great dating issues (rather than crazy divorcees), meaning my favorite advice columnist is back. A reader asks her:

Dear Prudence,
My son is 21, a junior in college, and seriously dating an 18-year-old freshman. He brought her to our house for Thanksgiving, and she is attractive and charming. The problem is that we are Jewish and have mandated to our three sons that they must marry a Jewish woman. We are heartbroken that he is dating a non-Jewish woman. We are not sure if we should forbid him from dating her or if we should leave them alone and hope that they break up and he finds a nice Jewish woman to marry. Please don’t tell me that I should get over this and accept whoever he wants to marry. My wife and I cannot accept a daughter-in-law of a different faith. I don’t want to over- or underreact, and don’t know what to do.

—Heartbroken

Prudie’s answer nails it, the best way to encourage your child to have a Jewish home and marriage is to make Judaism appealing.

Categories: Community, Dating, Jewishness, Matching Mechanisms
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The spermatophore is a package of male sperm that is deposited on the female. The researchers were able to monitor the sizes of the spermatophores and found that its diameter per copulation decreased in males that mated with many partners. The scientists wrongly hypothesized that this decrease in average diameter might result from the males rationing their sperm; it turned out, however, that they were running out of resources to distribute. As a result, the females sought more mates to accumulate enough sperm to fertilize all their eggs.

Scientists have discovered that with fewer males, females get more frisky.  And get your mind out of the gutter, they’re talking about butterflies.

Categories: Dating, Distribution, Funny, Matching Mechanisms, Science
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Prizes stimulate innovation better than grants:

BACK in the 1700s, prizes were a fairly common way to reward innovation. Most famously, the British Parliament offered the £20,000 longitude prize to anyone who figured out how to pinpoint location on the open sea. Dava Sobel’s best-selling 1995 book “Longitude” told the story of the competition that ensued, and Mr. Hastings mentioned the longitude prize as a model at that meeting back in March.

Eventually, though, prizes began to be replaced by grants that awarded money upfront. Some of this was for good reason. As science became more advanced, scientists often needed to buy expensive equipment and hire a staff before having any chance of making a discovery.

The internet is changing the economics of innovation and discovery.  Science is no longer expensive like it once was, it is within the realm of dedicated and educated hobbyists.  Robin Hanson, who the article discusses, is everywhere you find interesting information economics problems.

Categories: Business and Economics, Incentive Centered Design, Information Asymmetries, Information Economics, Information Markets, Matching Mechanisms, Science, Social Software, Strategy, Technology, Users as Partners
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Phoebe at Jewlicious bemoans that all Jewish events are Jewish singles events, taking her recent Birthright trip as the example:

The problem with Birthright (or at least the version I experienced) as it currently exists is the level of desperation. One can’t help but wonder, if Israel’s such a great country, then why do people have to pay us to go visit it? If Jewish women are so beautiful, as Momo keeps insisting, then why do Jewish men have to be told to notice this?

At some point, the leadership of the Jewish community has to wake up and end the forced mating program before Jews become like pandas, unwilling to breed in captivity to save the species. Instead, they need to go back to stating the value proposition of Judaism, the reasons that it’s worth saving.
Also, her post is one of the best I’ve ever read in the JBlogosphere.

Categories: Community, Dating, Israel, Jewishness, Matching Mechanisms, Strategy
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Kevin Bacon has leveraged his high network centrality into a charitable initiative, sixdegrees.org, which connects individuals to celebrities who advocate for a charity, or allows you to become a celebrity for a charity of your choice.  Somehow, it then networks people together, though I don’t really get how, and my guess is that the site cost more to put together than it’s raised so far.

Via Philantrhopy 2173.

Categories: Community, Information Markets, Matching Mechanisms, Philanthropy, Social Software, Technology, Users as Partners
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