>>Al Roth: We’ve been making markets since
before the invention of agriculture. And so markets are a little bit like languages. They’re
part of what people do. And like languages, there are a lot of different kinds of markets.
So I want to tell you a little bit about that today.
So when you think about the stock market, you think about a market that’s anonymous
and in which price does all the work. When you by 100 shares of AT&T on the stock exchange,
you don’t care who you’re buying from, they don’t care who they’re selling to and the
job of the stock exchange is price discovery. It should find the price at which supply equals
demand at each moment in the trading day. But not all markets look like that.
I teach at Stanford University, and so we are a part of the big annual market of college
admissions. And Stanford doesn’t raise its tuition until just enough students remain
to fill its seats. Stanford is expensive to go to. But we don’t set the price so that
supply equals demand. Lots of people would like to come to Stanford. And there’s an application
and admissions process. So you can’t just choose to go to Stanford. You have to be admitted.
Labor markets are like that, too. You can’t just choose to work for Google. You have to
be hired. And Google doesn’t hire its engineers by lowering the wage until just enough people
want to work for Google. Google — Google is a great job. You have to be — you have
to be hired. And, of course, Google can’t just choose its
engineers, either. They have to compete with Facebook. So these are matching markets. They’re
markets in which you can’t just choose what you want, even if you can afford it. You also
have to be chosen. So it’s a lot like marriage. You can’t just
choose your spouse.