Interdependent Utility and Truthtelling in Two-Sided Matching

Xiao Yu Wang

No 13-22, Working Papers from Duke University, Department of Economics

Abstract: Mechanisms which implement stable matchings are often observed to work well in practice, even in environments where the stable outcome is not unique, information is complete, and the number of players is small. Why might individuals refrain from strategic manipulation, even when the complexity cost of manipulation is low? I study a two-sided, one-to-one matching problem with no side transfers, where utility is interdependent in the following intuitive sense: an individual's utility from a match depends not only on her preference ranking of her assigned partner, but also on that partner's ranking of her. I show that, in a world of complete information and linear interdependence, a unique stable matching emerges, and is attained by a modified Gale-Shapley deferred acceptance algorithm. As a result, a stable rule supports truth-telling as an equilibrium strategy. Hence, these results offer a new intuition for why stable matching mechanisms seem to work well in practice, despite their theoretic manipulability: individuals may value being liked.

Keywords: two-sided matching; interdependent utility; stability (search for similar items in EconPapers)
JEL-codes: C78 D82 (search for similar items in EconPapers)
Pages: 23
Date: 2013
New Economics Papers: this item is included in nep-gth, nep-mic, nep-net and nep-upt
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