Attention, Silicon Valley entrepreneurs: before launching your next Internet startup, you might want to check out the work of two economists — Harvard’s Alvin Roth and UCLA’s Lloyd Shapley — who just won this year's Nobel Prize in economics. Their ideas on market design and efficient resource allocation, which became the template for matchmaking solutions in education and health care, would seem to be tailor-made for the powerful matchmaking capabilities of the Internet.
The major insight of Roth and Shapley was that, by understanding the core preferences of users, they could devise a system for allocating resources that could satisfy everyone. (In economist jargon, this would be a "stable match.") Shapley started with the iconic example of how to match 10 men and 10 women into 10 happy couples (which, believe it or not, became the basis for modern speed-dating), and proceeded to develop an efficient matchmaking algorithm for other situations. They found that nearly every major life event, whether it’s choosing a school, a marriage partner or an employer, could be viewed as an elaborate courtship ritual in need of an efficient matchmaking solution.
The Internet is already a powerful matchmaker, extrapolating from what is known about our preferences and presenting us with the best possible choices. Of course, we don’t really call them “preferences” — we call them “likes” or “favorites.” We tell the Internet, at various points, what types of music we like, and is suggests playlists with songs we might want to listen to later. We tell the Internet with the types of content we like, and it filters out the articles and subjects that we are most likely to read. We tell the Internet what type of people we like, and it suggests other people for us to follow. All of this is Internet matchmaking at work.
The second major insight of Roth and Shapley was that any matchmaking solution should be as equitable as possible for every participant involved. (To go back to the original matchmaking example, it’s better to have 10 somewhat happy couples, than 5 extremely happy couples and 5 extremely unhappy couples) Here, Roth and Shapley borrowed from the world of game theory — to think in terms of market participants broadly cooperating in order for everyone to win in the end. This led to the creation of matchmaking solutions for matching doctors with hospitals, students with schools, and even organ donors with transplant recipients — all that’s needed is for each of the market participants to rank-order their personal preferences, and an algorithm could do the rest.
Again, this seems tailor-made for the Internet.
The Internet is not only a great matchmaker, it’s also pretty much hard-wired into the DNA of the Internet that it be a place where altruism reigns supreme. How else could you end up with something like Wikipedia — or any of the countless ways that we use the Internet to share things with total strangersm, such as apartments and cars? This is what makes the Internet simply the most powerful matchmaking tool out there. Beyond its ability to crunch the algorithms on our preferences, the Internet’s essential cooperative and sharing features maximize the greatest welfare for the greatest number of people — just as Roth and Shapley suggest.
So, just think what is possible when we apply these two fundamental insights from Roth and Shapley to the matchmaking power of the Internet. Could it lead, for example, to a new matchmaking model for employment that goes well beyond anything on today’s job boards or LinkedIn? Imagine every employer rank-ordering their choice of employee, and every employee rank-ordering their choice of employer, running all this data through an algorithm on a regional or national scale... Presto! Full employment across the nation! That would be a business plan worth funding by any venture capitalist.
We’ve already seen how great ideas from academia can influence the development of Internet startups. Initial work on the "small-world phenomenon" can be viewed as the precursor of Facebook’s Social Graph and the development of modern social networking. Being able to transform sometimes abstract theories into something that works on the Internet might just lead to the next great multi-billion-dollar market opportunity. Devise a way to match the greatest number of people with jobs, or a way to match health insurance plans for the greatest number of people, and the world will want to court and woo you.
Washington Post Co. Chairman Donald E.Graham is on Facebook's board, and The Post markets itself on Facebook.
Dominic Basulto is a digital thinker at Bond Strategy and Influence (formerly called Electric Artists) in New York. Prior to Bond Strategy and Influence, he was the editor of Fortune’s Business Innovation Insider and a founding member of Corante.com, one of the Web's first blog media companies. He also shares his thoughts on innovation on the Big Think Endless Innovation blog and is working on a new book on innovation called "Endless Innovation, Most Beautifuland Most Wonderful."
Read more news and ideas on Innovations: