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Economic principles have applications in a broad range of activities, from buying a house to launching a business. A new book by Paul Oyer, the Fred H. Merrill professor of economics at the Stanford Graduate School of Business in the US, looks at how you can understand seemingly dense concepts like search theory and signalling from something as accessible as online dating.

In an email interview, Oyer talks about the idea behind his new book, Everything I Ever Needed to Know about Economics I Learned from Online Dating, and how picking a bad date online is akin to making a poor hiring decision. Edited excerpts:

What does online dating have to do with economics?

Online dating is a great place to learn economics because it is a market like so many others we engage in every day and it’s a market that people understand. Most people associate economics with money, but money is a boring and unimportant detail for most economists. I like that online dating allows me to explain economic ideas without mentioning money.

You write in the book that, like dating, signalling has applications for those seeking a job.

Everything I Ever Needed to Know about Economics I Learned from Online Dating: By Paul Oyer, Harvard Business Review Press, 237 pages, Rs 995
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Everything I Ever Needed to Know about Economics I Learned from Online Dating: By Paul Oyer, Harvard Business Review Press, 237 pages, Rs 995

Finding an effective signal is difficult and the right way to do it varies depending on the situation. A detailed application letter that is specific to the exact needs of a company is sometimes enough. It shows that you invested in the costs of learning about the company and thinking about how you would fit in there, while others would not go through the trouble or not be able to argue effectively that they belong. But sometimes you need to be more creative.

What lessons does online dating have for an entrepreneur?

I think there are a few common sense ideas that apply to both. For example, remember that your customer/investor/partner has limited time to look around. You have to convince them very quickly that the potential benefits of working with you outweigh the costs. Second, remember that people make assumptions about the things they don’t know about you based on the things you tell them. So be careful how you present yourself so that others don’t think you have something to hide.

In what way are an investor looking to put money in a technology start-up and a woman going through profiles on a dating website in the same boat?

It’s really the same process. In both cases, they know they have limited information and that the other side has incentives to skew that information. They have to be careful and they both know that while a better opportunity might come along if they wait, they could also spend a long time without anywhere to invest (in the first case) or being lonely (in the second case).

What is a “thick market"? How does the concept work across shopping malls and online dating?

A thick market is one with lots of buyers and sellers (or, in the case of online dating, lots of people looking for partners). Thick markets are very good when buying commodities like gasoline or stocks and bonds because thickness creates competition. It’s easy to determine appropriate prices and people do not generally get ripped off.

In the markets for jobs and life partners, market thickness works slightly differently. People and jobs are all different—there are no perfect substitutes. So having lots of people on a dating site or lots of employers on an Internet job board means people and employers will be able to find better matches. I would rather be on a dating site with 1,000 potential mates than one with 10. Even though I only need one mate, I’m likely to find one with whom I am more compatible on a bigger site. The exact same principle applies to shopping malls. If you have very specific tastes in clothes, a bigger mall with more options will allow you to find exactly what you want rather than settling for the best you can find at a store with a limited selection.

In what way is picking a bad date partner similar to hiring a lemon?

Firms draw inferences all the time when picking employees so as to avoid “lemons". For example, studies have shown that companies will shy away from hiring someone who has been out of work for a long time, even if the person has appropriate skills, because they assume long-term unemployment occurs for a good reason. So some people lose their jobs at the height of a recession, go six months to a year looking for work as the recession continues, and then have to face the fact that employers see them as “damaged goods".

Similarly, if a person gets to a certain age and has not had a serious relationship, or if people figure out that the person has been on an online dating site for a very long time, potential partners for this person begin to assume he or she is not capable of holding down a long-term relationship. Or, just as someone who hops from job to job scares off potential employers who are looking for stable workers, potential partners make negative assumptions about people who have many short-term relationships but no longer-term ones.

Just as you have to be careful about what you say on your résumé because potential employers will make assumptions, you have to be careful what you say on your dating profile.

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