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Game Theory & Economics of Dating Apps

We recently came across an article “Why we need a dating app that understands Nash’s equilibrium” which covered Nash Equilibrium and the Marriage Supermarket. Here’s a short brief of the article:

Part I: Nash Equilibrium

Nash’s equilibrium is a simple concept that helps economists predict how competing companies will set prices, how much to pay a much-in-demand employee and even how to design auctions so as to squeeze the most out of bidders.

The most popular illustration is The Prisoner’s Dilemma,

PrisonerDilemma

In a Nash equilibrium, every person in a group makes the best decision for himself, based on what he thinks the others will do. And this inevitably ends up being a bad decision for the collective.

Part II: The Marriage Supermarket

Tim Hartford, author of “Logic of Life” has a wonderful piece on the The Marriage Supermarket. People are rational, and act in their best interest. We all seek an equilibrium (Nash Equilibrium in this scenario) to believe that our decision is a win situation for us, and for others, either a win or a lost.

Marginal Revolution (Link) summarised Tim Hartford's chapter from Logic of Life:

In this supermarket any man and woman who pair up get $100 to split between them. Suppose 20 men and 20 women show up at the supermarket, it's pretty clear that all the men and women will pair up and split the $100 gain about equally, $50,$50. Now imagine that the sex ratio changes to 19 men and 20 women. Surprisingly, a tiny change in the ratio has a big effect on the outcome.

Imagine that 19 men and women have paired up splitting the gains $50:$50 but leaving one woman with neither a spouse nor any gain. Being rational this unmatched woman is unlikely to accede to being left with nothing and will instead muscle in on an existing pairing offering the man say a $60:$40 split. The man being rational will accept but this still leaves one women unpaired and she will now counter-offer $70:$30. And so it goes.

If you follow through on the logic it becomes clear that in the final equilibrium no married (paired) woman can be significantly better off than the unmarried woman (otherwise the unmarried woman would have an incentive to muscle in with a better deal) and so because the unmarried woman gets nothing the married women can't get much more nothing. Thus when the sex ratio is 20:20 the split is $50:$50 and when the sex ratio is 19:20 the split is more like to $99:$1 in favor of the men.

The key simplification of the marriage supermarket is that the next best option to marriage (pairing) is worth $0–thus there is a long way to fall from the equal sex ratio equilibrium of $50. If the outside option is worth more than changes in the sex ratio will have smaller effects. Nevertheless, the logic of the marriage supermarket explains why a relatively small change in the sex ratio can lead to a large change in sexual and other mores affecting the marriage equilibrium.

Part III: And What About Dating Apps and Economics (including Game Theory) now?

In general, most dating apps would follow The Marriage Supermarket whereby the ratio of male to female users would tend to be 60% male and 40% female (and in some countries, the ratio is highly skewed towards male users, for instance, in China & India).

Today's dating apps seem to be competing or at least, try to compete in a casual dating area which is dominated by one player. New dating apps should aim to create a different experience combining product and business model to enable its users to better position themselves, i.e. showcase their genuine interest while minimizing a poor game theory strategy (i.e. prisoners' dilemma).

We took the liberty of adding a few more points based on economics, thus expanding from game theory to signal theory, adverse selection and search theory.

Going back to the original’s article main point (Link):

Female’s user attention is a shared resource.

The gender representation being heavily skewed in most cases would translate into men have to do extra effort to get women’s attention.

Historically, the idea stems from an old 1950’s bar scenario, where a guy offers to buy a woman and her friend a drink and in return for his generosity, they allow him a few minutes to show off his charisma, or ‘peacock’ if you’d like.

Modern dating powered and facilitated via dating apps, the ‘peacock’ experience is often cheap, too cheap. For some, it is only swipe after swipe with almost no time and emotional investment. In addition, the dating apps have made the pool of potential candidates larger - by lowering the geographical barriers even. Yet, signaling one's interest requires more effort

However, there have been features to address the aforementioned issue by creating a ‘pay to play’ model - First, pay for extra access which oftens come in the form of a membership or premium access. Second, pay for virtual items/service and used to get someone’s attention (e.g. superlike or wink).

Fortunately, competition among dating apps have triggered product innovation. Some apps have been able to create new experiences for the users. For instance, one app only shows you a limited number of highly curated, pre-selected matches of the opposite gender. Another one is even more radical in only letting women send the first message.

Another perspective is to enable the O2O experience which enables a user to send a real life gift to the person of interest. First, this shows strong signal through a willingness to invest (in this case) money to express one’s interest. Second, there is nothing more heartwarming than a bouquet of flowers or a box of chocolate.

Again, since female user’s attention is scared. One should think deeply and thoughtfully about what to write on their profile. Adverse selection could leave a negative impact on one’s profile given that the other party does not know you well yet. Most apps have tried to provide users with the opportunity to create a decent profile and ironically, not many people do seize the chance to do so (we do not have the data to support this though).

Lastly, whether the ratio is skewed or not, the reality of life can be harsh (for both male and female). On one hand, male users are facing limited supply of female users and on the other hand, female users have to be ‘fast’ at being happily matched. Paul Oyer, author of “Everything I Ever Needed to Know About Economics I Learned from Online Dating” mentioned it that ‘You need to search long enough that you understand the distribution of offers (don’t settle!) but once you feel like you know what’s out there, try to be realistic.’ Search theory = Do not be picky.