Sweetheart deals: Financial Express 9th March 2014 (Book Review)

ONLINE DATING is quite in vogue today. It is more pertinent when a person is not able to find a partner during college days or at the workplace. Or, as in Paul Oyer’s case, who was on the lookout for a partner through online dating sites after separation from his wife. In the course of his attempt to work out a compatible arrangement, he realised that a lot of economic principles can be better explained through the unwritten rules and practices that govern dating encounters. Unlike eBay or Monster.com, where products are traded, there is no commodity as such in online dating and hence no substitute. Also, no money actually changes hands, but it is a search for the best fit, which is what happens in a market economy. Date searching, in a way, is similar to job hunting, where the two parties have to like each other. But it is unlike, say, seeking a house, where the house need not like you and it is you who decides whether you like the house or not based on whatever criteria you have set. The author takes readers through concepts that work in our economic life too. Oyer’s approach in Everything I Ever Needed to Know About Economics I Learned from Online Dating is more in the genre of books written by Tim Harford, Steven Lewitt and Stephen Dubner or, for that matter, Tyler Cowen. It is a case of observing closely what goes on around you and then tracing the economic principles guiding us. Let us sample some of the analogies drawn by him in this fascinating book. First, the author talks of the existence of ‘network externalities’ in dating just like in the marketplace, where demand creates demand. If more people visit a matching site, more would join it, as everyone wants to have more options. An example is Facebook, where everyone who wants to get connected gets on to the site, which, in turn, gets more people to join. This is different from, say, eBay, which people don’t visit just because more people are there. It is a case of who gives a better deal. This is contrary from, say, using a highway, where there is a ‘negative network externality’ once we realise that everyone is using the track. We would prefer a less used route. Here, demand lowers demand on an incremental basis. Second, on a dating site, how does one ensure the parties are genuine? This may be asked about used cars too. Everyone says nice things about himself or herself and professes his or her love to get a date. This, according to Oyer, is ‘cheap talk’ and everyone knows it. A Korean dating site found a solution just like the way American economist Michael Spence spoke of the second-hand cars market—lemons and the use of signalling. The signalling solution in dating was where the Korean site offered, as part of the package, two free e-roses that a person could send. This limited the ability to indulge in cheap talk. In case of the employment market, too, education or qualification is a signalling tool, where the employer knows if what you are saying about yourself is genuine or not. In fact, often, while taking a general examination, you are asked to mention two universities you would like your score to be sent to. This ensures that you apply to colleges you really want. Also, the receiving college knows that it is not one of the many institutions you have sent your application to. Hence, colleges know you are really keen on getting admission there. In case of dating, women prefer that men travel to see them and they can gauge the man by the restaurant he chooses, the clothes he wears and also the watch on his wrist. Third, the principle of ‘statistical discrimination’ works in dating and business. Some offices prefer men to women, or even discriminate on race for that matter, which is based on a perception that, statistically, the job is better suited for the defined class. In dating, too, the exercise gets subjected to this principle, especially if the searchers have been through matrimony earlier. Some of the questions that may come to mind are: is the person genuine about the relationship or will he go back to their former spouse as time goes by? Or even more worrisome is whether a person is dating more out of anger against his or her last spouse and may not be committed to a new relationship. Also, if one is separated or divorced, there could be stigma attached to it, as in, if the first marriage did not work, is there any chance that this one would also not? Fourth, related to this discrimination is the possibility of adverse selection. One thought is that only losers join these dating sites and, therefore, there is a good chance of adverse selection. In the field of insurance, the risk is similar. Older people are more likely to need insurance as they have higher probability of falling ill. Companies are more likely to receive claims from them. Younger people normally do not take insurance as they are less likely to fall ill. Therefore, the premium has to be differential based on age. Buffet meals face the same risk, but cannot really distinguish on age, though they could charge lower rates for children. Dating, too, hence runs the risk of adverse selection, just like in insurance. Fifth, the author talks of the concept of ‘assortative mating’ that holds in the employment market and dating. The highest-paying companies normally go to the best schools for recruitment. When it comes to dating, too, something similar happens. When one is selecting a date, one looks at attributes like race, income, education, work, etc, or similar grounds for making a start, which also implies that there are pre-conceived notions. But at times in offices, it is realised that negative assortative mating works when less efficient people are teamed up with good workers, and this is when the demonstration effect sets in and helps the overall efficiency improve. Sixth, the author also talks of how the dating market relates to ‘thick and thin’ markets. This is just like shopping, where we prefer to go to a mall where we get everything in one place with a lot of choices thrown in. This is preferable to shopping in a town or an area, where there are just a few shops. In dating, too, one prefers thick markets and if one closes in on geography or habits, be it sports or, say, diet preferences, the market can thin down. If one is looking for, say, a vegetarian partner in and around a specific city who also plays tennis, then the market becomes thin. This holds in our lives too when we prefer to visit a place where more options exist. Some interesting observations added along the way are that looks and money matter everywhere. It is a positive even when searching for a job. Surprisingly, under ceteris paribus conditions, weight does not matter in dating. Looks work for athletes, as it means greater possibility of getting endorsements. Also, education does not matter in dating under ceteris paribus conditions. All these conclusions make the book quite enjoyable and, in the end, the reader is convinced that online dating and economics do have similar goals driving them.