SARAH GREEN: Welcome to the HBR IdeaCast. I’m Sarah Green. I’m talking today with Paul Oyer, Professor of Economics at Stanford’s Graduate School of Business. He’s the author of the book, Everything I Ever Needed to Know About Economics I Learned from Online Dating. Paul, thanks so much for talking with us today.
PAUL OYER: My pleasure.
SARAH GREEN: So Paul, I’d like to just kick off by talking a little bit about the economic concept of search costs. Can you just maybe describe what the concept is and how you’ve applied it to this idea of looking for a life partner?
PAUL OYER: Well, in everyday life, we’re always going around making decisions and some of those decisions are very costly. So when I go to the grocery store, if I spend a lot of time scanning the shelves, I could be doing other things. And if I want to buy a new house and I go from open house to open house, I could be doing other things. However, we invest in those search costs because it’s worth it, because we get something we really want.
And so when we think about a place where investing and getting what you really want is particularly valuable, it seems like the market for a life partner is hard to beat. So if we just go into some market where everything is commodity, I don’t know, stocks, or bonds, or something like that, we don’t need to do much searching. We just buy one share of whatever company it is or we just buy one ton of soybeans or whatever it is. But when we’re picking a life partner, everybody’s different. There’s literally no perfect substitute.
So in an ideal world, we would have the ability to search every single person out there and pick the ideal match. But the world is not ideal and going about searching through people is very costly. So online dating has actually provided a boon to the market, or at least from my perspective I think of it that way. Because going out and meeting people is costly and difficult. Whereas, searching through online profiles can be fairly efficient. Now it has its downfalls that we’ll probably get to, but at least it’s a sort of quick way to get a feel for people that might be of interest to you.
So you have to spend the time going through profiles on websites and things like that and that can be very costly. But it can also be very rewarding, because you’re going to get a better fit, a better partner, as a result.
SARAH GREEN: Well, and, of course, there was one little wrinkle to this, which actually makes it more like the world of hiring, which I was so glad that you mentioned, which is that you are not just sort of shopping for a partner. You’re looking for someone who will in turn choose you. And this is something that when pundits start talking about settling and how more people should just settle, I always want to scream, because I think, but, you’re not just settling for someone. They’re settling for you too. That’s why I was very glad to see you make that distinction. So how does that kind of mutual choosing option kind of mix things up?
PAUL OYER: Well, it does make the market a lot more complicated as I point out in the book. Shopping for a house and shopping for, that’s terrible terminology, but trying to find the right life partner are very similar in the one sense where each one is different. So every house is different and every life partner is different. But when you do shop for a house, you just need to find the one you really want and be willing to pay enough for it. Whereas, when you pick a life partner it’s much more akin to the job search. Both sides have to agree.
And as a result, what ends up happening is both employers and people looking for jobs as well as people looking for significant others are always wondering could I do a little bit better? And they might, even given an option, not take it. So I might date somebody a few times and I think, well, you know I can probably find a match that would be a little bit more appropriate. But I pay the cost on that, which is in the short term I have to keep looking for somebody and I’m lonely. And in the job market, there’s something very a kin to that which is if I keep looking for just the right job and the employer keeps looking for just the right person, they end up having openings that are unfilled and I end up being unemployed. So loneliness in the partner market is basically similar to unemployment in the job market.
SARAH GREEN: Well, and as you point out in the book, there is one way in which both romantic partners and potential employers try to get you to choose them by signaling either how desirable they really are or maybe at least how much they’re really interested in you. And you had some really great examples of everything from Korean dating sites to high end law firms on how people do this, or law clerkships. And I’m just wondering when you think about ways to signal interest in a way that will reflect well on you and result in a positive outcome, as you call it in the book maximum utility or maximum happiness, what were some of more effective approaches that you saw?
PAUL OYER: There’s a big problem in the online dating world which is it’s very easy to say something, I’m interested in you or I have this certain characteristic, it’s showing it that’s more difficult. And so one thing that I found particularly interesting is when an online dating site in Korea stepped in and said, OK, how can we make this market work a little better? How can we make it so that when somebody says I’m interested in you, they really mean it. And the way they did that is they use the what an economist would call the idea of signaling.
And the idea here is I need to make it expensive for you to signal to me that you’re very interested in me. And the way they did was they said, everybody on our site can send invitations for dates to up to a certain number of people, but only two of those people can they also send what they called a virtual rose to. And so now, that put the onus on the people to very carefully think through, well, who do I want to send my virtual roses to? Who do I want to show I really care about you? I’m really interested in meeting you.
And it turned out that this was very effective in the sense that people were much more likely to respond to a request for a date If it came along with a virtual rose than if it was just any old email that said, hey, I think you’re cute or whatever people say in these emails. So that’s one way that it’s been very effective in online dating. Now, I’ve often wondered why Monster.com and the like don’t do something similar there. Again, drawing a parallel between the dating market and the job market seems like there’s an opportunity for the Monster.coms of the world, or LinkedIn, or whoever could do such a thing to allow individuals to have up to one signal to an employer every month or every six months or something like that where they say, hey, I see you have an opening. I really want to work for your company. And I’m only allowed to send one of these hey, I really want to work for you signals a month. So it means something.
SARAH GREEN: Well, and that’s an interesting point. Because as you were pointing out earlier, how in some ways online dating has made things more efficient. But one of the things that it has done is it’s really lowered the costs of getting in touch with someone. And the same is true of hiring. And it’s very easy just to email your resume to everyone. But in a way, you’re talking about imposing some artificial scarcity on the decision process so that it becomes more valuable again.
PAUL OYER: Yeah. Artificial scarcity is a very good way of putting it. I think that can be very valuable. Sometimes when you lower the cost of doing something, you make it too easy. Another example that I mentioned in the book and that’s very close to my heart right now because my daughter is a senior in high school graduating to college is the Common Application in colleges. So as you may or may not know, these days when you apply to college you can do a bunch of the application work for all schools together through what’s known as the Common Application.
It saves students a lot of time consuming work in terms of entering data about themselves and writing essays and so forth, because they get shared among all the schools they apply to. But now, each school sees your application and you basically had to do nothing extra, or sometimes they’ll be some extra work, but relatively little extra to apply to each school and so the school has gotten very little sense for how much you actually care about them. Just like if you just send a generic message saying, I really want to meet you. The person on the online dating site doesn’t have a good sense for how much you mean it.
SARAH GREEN: Well, and this raises, I think, an important distinction that you draw in the book, which is that some of these signaling mechanisms, whether in dating or hiring or wherever, they don’t work equally well in every situation. There seems to be some situations where signaling is really important and other situations where it doesn’t really matter. Can you walk us through the rubric there of when it matters more for what kind of candidates and what kind of applicants are applying for what kind of jobs?
PAUL OYER: So signaling is going to be especially valuable in a case where it doesn’t seem as plausible that you’re particularly interested in somebody or some job or something like that. So if you have a really highly qualified person coming out of a top undergraduate or top MBA program who could get a job at Facebook or Google or whoever the hot employer happens to be at that time, but they apply for a job in, I don’t know, some small engineering firm not in Silicon Valley. That firm’s unlikely to take them seriously. So finding a mechanism for that person to be able to signal hey, I really want to work for you can be extremely valuable. Because otherwise, those firms are going to ignore top qualified candidates who might want them.
The online dating example that falls along those lines goes back to the Korean dating site I mentioned. And so it turns out these virtual roses were on average very useful. But the Korean dating say was able to use various measures to determine who were the most sought after people on their website and who were not as sought after. And it turns out the most popular people on the website we’re not very responsive to virtual roses. Because their attitude was well, of course, that person’s interested in me. But if you used your virtual rose on somebody who didn’t have as many other great dating alternatives that turned out to be extremely valuable and raise their response rate quite substantially. And again in the job market being able to figure out a way to make people’s signals to less desirable employers credible would be, I think, very useful for allowing people to work in the types of jobs they want to work in.
SARAH GREEN: In that case, I want to move on to another topic that you allude to in the book but you didn’t talk about it, I don’t think, very head on which is ultimatums. Because those happen in relationships and you talked about them in the labor force as well. And there was a great anecdote of a young person who’d been offered a legal clerkship. And I think the judge left him three different messages. And the first one was offering him the job, the second was telling him that he really needed to make up as mind, and the third one was rescinding the job offer because he hadn’t replied soon enough. And this all happened when he was on a plane.
PAUL OYER: A 35 minute flight.
SARAH GREEN: A 35 minute flight, wow. Yeah, so a very extreme case. So how do, as an economist, how do you see either job ultimatums or relationship ultimatums as an attempt to impose control on an uncontrolled situation?
PAUL OYER: Yeah, the example you just gave of law clerks is a particularly colorful example of something you see in the job market occasionally which is known as an exploding offer. And the idea behind an exploding offer is to try to hurry somebody into making a decision to go work for you when you know they might have better options out there. And these types of offers, I guess, they can be useful in that they lower everybody’s search costs a little bit, but they can also be very destructive in that they can lead people to accept jobs that are not appropriate to them.
So when a law clerk is looking around, it’s best if they have the time to shop around at least to the point that they want to rather than be forced to make a decision before all the alternatives are on the table. Somehow though you’re allowed to, at least in some places, exploding offers are considered OK. And we do see them in the job market. And there are frowned upon, but there are no rules against them or anything like that.
However, if you notice in the relationship market, the social norms against this are very different. If somebody said to you the equivalent of an exploding offer in the dating market would be if somebody said to you, will you marry me and you have to tell me right now. And if you don’t answer yes right now, I’ll never talk to you again. And yet that would never be accepted. And I think that’s probably a good thing that the dating market has worked out the social norms such that people are allowed to shop around if you will.
SARAH GREEN: Well, Paul, I really appreciate you taking the time to chat a little bit with us today. Thanks, again.
PAUL OYER: Thanks so much for doing this.
SARAH GREEN: That was Paul Oyer, Professor at Stanford’s Graduate School of Business. The book is called Everything I Ever Needed to Know About Economics I Learned from Online Dating. For more, visit hbr.org.