May 12, 2014

Book Review : Everything I Ever Needed to Know about Economics I Learned from Online Dating by Paul Oyer

[This article was published in The Hindu Business Line on 12-May-2014]

When apples cannot be compared with oranges, is it pragmatic to compare and learn about economics from the world of online dating? Can the adventure of finding a prospective spouse online follow the trends of supply and demand? Does the process of buying and selling have any correlation with the way you choose your date? How do you think a book could be structured where there is no talk or special treatment of commodities, and economics is explained in a context where no money is being transferred?

"Everything I Ever Needed to Know about Economics I Learned from Online Dating" is a result of what happens when an economist and a Professor who teaches and sees economics everywhere sits down and correlates his experiences and observations with the world of Online Dating.  Paul Oyer, the author of the book, is a Professor of Economics at Stanford Graduate School of Business and has around two decades experience in economics training.  The book published by the Harvard Business Review Press is divided into ten chapters wherein the author reflects upon different facets of online dating and economics in simple terms. Key microeconomics concepts like search, signaling, adverse selection, cheap talk, statistical discrimination , thick markets and network externalities along with apt story telling makes it a mellifluous read.

At the very beginning of the book, the author is careful enough to assert that the partner market is one where both sides have to settle for each other, just as in the job market. It's different from grocery shopping, as in the latter the groceries don't have to love you back. Lying, the non-cooperative part of game theory, coupled with exaggeration is often seen on dating websites. Factors like appearances (especially height and weight), income often digress from the actual, and there is an honest attempt where everyone wants to seem as attractive as possible and not fatter, poorer and uglier.  When talk is cheap and profile inflators have incentives to tell lies, then would you lie to beat your competition? Without getting into the morality of this practice, and the questionable veracity of the information, the author points out a few examples of offline verification in China and Korea which generates the right 'signal' for the prospect but also is an expensive process. Companies under pricing shares at an IPO to signal quality and make it easier to raise more cash in the future is one such that signals you really mean what you say.
  
Demand, the most crucial concept in economics, is driven not by the product but by other users, and hence demand is driven by demand, and this phenomenon of network externality is best cited using the example of an online dating site where no one wants to be the lone user using the website. A product has a network externality if one added user makes the product more valuable to other users, very similar to malls and singles bars in the physical world. And hence size of the market also matters, in what is being termed as 'thin' and 'thick' markets where the options available in the market also drive the buyers and sellers suitably. Wider set of opportunities leads to shopping around and the author introduces us to the sly technique of 'exploding offers' which can lead to some interesting dynamics.

Oyer calls the entire world of online dating to be a game of hidden information and 'statistical discrimination' - people invariably end up hiding information about them which can lead the reader of their profile to be judgmental, but he is careful enough to point out that people act in a manner that hurts members of a certain group though they have no negative feelings toward that group. He cites examples in the real world from locking your car while riding through a poor neighborhood to racial profiling in airport security, where some sort of statistical discrimination continues to exist and can work in people's favour at times. This is primarily due to statistical relationship and correlation rather than the individuality of the person involved. But before you cringe with the examples, he cautions and observes that the detrimental effects of stereotyping are pervasive and substantial. 

The chapter on Positive Assortative Mating is probably one of the most interesting chapters in the book wherein the author states by citing various research methods that the 'best' always pair of with the 'best', when it comes to physical attractiveness, income, race, education etc and this is essentially a non-random scheme and can be easily ordered. Though we might end up being paired with people who are more like we are in terms of characteristics, the author gives us insights into negative assortative mating, wherein people at the opposite end of spectrums might end up being productive for the organization when paired together as guilt and shame can come into the frame forcing high-output from even a poorer performer.

The author talks about good looks, education and higher salaries in what could be a controversial penultimate chapter and states quite bluntly that 'it pays to be attractive' as studies show that attractive people end up getting paid better. There are brilliant insights in this chapter on how completing a year of education can actually lead to better pay and how education indeed has a big causal effect on the money that you bring back home.

Author's sense of humour is reflected all throughout and especially in the last line of every chapter. His treatment of the subject is highly compassionate and the light hearted story-telling makes it a worthwhile read. The lack of a prescription to succeed in the world of Online Dating and anecdotal evidences all the way from online advertising bidding wars to dynamics in a homosexual couples, keeps the reader engaged even if the reader is clueless with the dating lores. The formatting of the book necessitates credits as it is done in way such a way that understanding is not an afterthought while reading. The multi-paradigmacy style is often seen as a winner in contemporary books and the author has furthered his analytical repertoire by cross correlating economics with other societal practices and structures. 

Selected Lines:  
When picking a life partner, I don’t get to pick the best one available. I get to pick the best one available who picks me back. In this way, the online dating search process is much more similar to the job search process than it is to the house hunting process.
My partner is truly wonderful. If I kept looking, I could probably do better. But I have to earn a living, make dinner, practice the piano, and do a bunch of other stuff. So I’m going to settle for this person and move on with life. It could certainly be a lot worse.
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