Ulric B. and Evelyn L. Bray Social Sciences Seminar
Abstract: We study assignment markets: two-sided markets where indivisible heterogeneous items with unit demand and unit supply are traded for money. These types of environments are important as they reflect key characteristics of, for example, housing markets. Shapley and Shubik (1971) proved that core allocations solve the optimal assignment problem and correspond one-to-one to competitive equilibrium allocations. Despite this result appearing a half-century ago, it remains unknown whether core allocations in assignment markets can be reached by decentralized individual behavior. This paper takes a step towards filling that gap. We explore, theoretically and experimentally, how different trading institutions help agents discover and reach optimal assignments in a noncooperative environment. In view of the complexity of the market, experimental results are perhaps surprisingly well-predicted by theory. We observe market outcomes close to Nash equilibrium predictions under auction-like institutions, and close to generalized bargaining for institutions that feature decentralized communication.
Joint work with Arthur Dolgopolov, Daniel Houser, and Thomas Stratmann.