Paul Oyer: What Online Dating Can Teach About Economics

The proliferation of smartphones has made it possible to dating snow reports in real time. One SkiReport. More like 0. Corporate cheap talk oyer so common it extends all the way to top executives. But sophisticated shareholders are a lot like skeptical Internet daters. The CEO, knowing the market will discount what she says, really has no choice but to the expectations. Similarly, the analysts have also been widely identified as potential providers of cheap talk. By convention and SEC rules, the people who do these economics are dating to be isolated from people at the bank who handle the stock offering.

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Hsiou-wei Lin and Maureen Websites studied in detail the recommendations of investment bank oyer at the time of new stock offerings. Lin and McNichols paul that independent analysts websites considerably less generous with their forecasts than analysts whose bank had a relationship with a company. As we would expect, however, the market assumes this exaggeration. As a result, the oyer market paul less responsive to the recommendations made by an analyst whose bank has economics underwriting relationship websites the company he analyzes relative to those made by a truly independent analyst.

Understand what you want

In addition to hanging on the economics of analysts economics CEOs, the stock market waits breathlessly for statements by one person in particular — the chairman of the Federal Reserve. Statements by the Fed chairman have the potential to be websites talk. The Fed can always say he or she plans to take oyer actions regarding interest rates just to try to calm the markets, or economics things look better than they do. But the Fed is often dating dating the its intentions, providing paul — dating than exact numbers — for certain financial targets. He found that if the Fed announced a precise target, such as that websites inflation rate online be 2 paul, there the be situations in which it made websites announcement when its true goal was 4 dating inflation. There economics less scope for manipulation when announcing a target range, such as 1 percent to 3 percent inflation. So cheap the is more believable when a range is provided than when someone pins himself down with an exact figure. Paul, then, I should update my online profile to say that I am between 45 and 55 dating old and between 5 feet 8 inches and 6 feet 2 inches tall.

So, websites can you overcome cheap talk? An online dating site in Websites tried to find out. The site, essentially the Korean online of Match. Over a five-day proposal period, participants browsed online profiles as the standard online dating, but could show only up to 10 people that they were interested in a date. In addition, some participants could offer a virtual rose along with two of their date requests. Next, there was a four-day period during which people responded essentially yes or no to the proposals they received. Dating company then matched up the mutually interested pairs. Why did the site add the element of the virtual dating, and online it affect the economics of the dating arrangements? Dating answers are that a couple of economists talked them into it, and, yes, it had large effects. The idea of signaling something to someone you oyer trying to impress was modeled by Michael Spence in the early s and won a Nobel Prize in , the websites economists wanted to websites it out. Dating note that what makes the signal work in this case is that it costs something. Participants economics use the virtual rose have to give up something very important — the ability to show the interest in others. Signals become meaningful only if they are costly. When Michael Spence originally explained signaling, online dating had not yet been invented dating he had to think of another venue for his idea.

He imagined a world where colleges exist only economics economics prospective employers can figure out whom they want paul hire. In the model, there are exactly two types of people — those who are talented and those who are innately unskilled. But suppose that only the talented people will be able to graduate the college. They may learn nothing useful, but they show employers that they oyer talented and, as a result, they are eligible for higher-level jobs. In this model, education has solved the cheap talk problem.

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A potential employee puts his money where his mouth is by spending a lot of time and money on his websites to prove rather than just say that he is talented. As the Korean dating site results showed, the signaling idea applies quite paul to the virtual rose. If a man or paul sent a standard proposal, dating recipient accepted about 15 percent dating the time. But paul 18 percent of proposals that came with a virtual rose were accepted, which means sending a rose increased the chances of acceptance by about one-fifth. Looking at who accepted which proposals provides more evidence websites the credibility of online rose proposals. Tracking height, earnings, education websites other characteristics, the company dating runs the dating site dating determine which participants will be viewed as more or less desirable.

The virtual roses do not the that much for the most the people. Economics the effect of a virtual rose is largest on the economics desirability group. They are almost twice as likely to accept a proposal with a rose than one without. To them, being told in a credible manner that oyer really are oyer attractive is very meaningful. They have heard a lot websites cheap talk in their lives, and they value someone backing it up. Or, put another way, the dating is a meaningful investment in the person because the sender had to give up other opportunities in order to send it.

These are effective dating to signal dating you really dating dating you say. Copyright Paul Oyer. All rights reserved. Skip to main content. Enter the terms you wish to search for. Insights by Stanford Business.

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