Stability and Bayesian Consistency in Two-Sided Markets | Zendy

Qingmin Liu | Zendy

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Stability and Bayesian Consistency in Two-Sided Markets

Author(s) -

Qingmin Liu

Publication year - 2020

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.20181186

Subject(s) - pairwise comparison , counterfactual thinking , path (computing) , consistency (knowledge bases) , bayesian probability , matching (statistics) , stability (learning theory) , contrast (vision) , economics , mathematical economics , econometrics , information asymmetry , bayesian inference , mathematics , mathematical optimization , computer science , microeconomics , artificial intelligence , statistics , psychology , machine learning , social psychology , programming language

We propose a criterion of stability for two-sided markets with asymmetric information. A central idea is to formulate off-path beliefs conditional on counterfactual pairwise deviations and on-path beliefs in the absence of such deviations. A matching-belief configuration is stable if the matching is individually rational with respect to the system of on-path beliefs and is not blocked with respect to the system of off-path beliefs. The formulation provides a language for assessing matching outcomes with respect to their supporting beliefs and opens the door to further belief-based refinements. The main refinement analyzed in the paper requires the Bayesian consistency of on-path and off-path beliefs with prior beliefs. We define concepts of Bayesian efficiency, the rational expectations competitive equilibrium, and the core. Their contrast with pairwise stability manifests the role of information asymmetry in matching formation. (JEL C78, D40, D82, D83)

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