Information
Anthony Ding
Econ 182: Honors Market Design
Prof. Fuhito Kojima
June 4, 2014
1 Introduction
This paper is a continuation of a presentation given in class on Wednesday, May 21,
2014 under the same title. The focus of this paper will be to briey review the insights
shared in the presentation and discuss various models that have been proposed to model
incomplete information.
One of the rst papers that comprehensively explored the idea of incomplete infor-
mation was published in 1989 and written by Alvin E. Roth. This is the paper we will
explore rst and the paper that will make up the bulk of this review. While there have
been many important contributions in between, for the next paper, we will skip forward
to briey discuss the modeling aspects of a more recent paper by Qingmin Liu, George
J. Mailath, Andrew Postlewaite, and Larry Samuelson, published in 2014.
This review will begin st with a motivational section which discusses why we might
want to consider models of incomplete information in the rst place. It will then cover the
two papers introduced earlier and end with a summary of the results and key takeaways
from the current scholarship on matching with incomplete information.
2 Motivation
As mentioned before, we might ask ourselves why there is a need to model incomplete
information. Some of the the reasons why incomplete information models are interesting
and useful include the fact that they may be more realistic models of the real-world, that
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they raise strategic and behavioral implications that are otherwise reduced to assumptions
in the complete information model, and that they allow us to test the robustness of the
theories that arise from complete models.
To a certain extent, no model of the real world is truly complete and accurate and
in fact, parsimonious models often do a very good job of modeling out-of-sample results
without introducing too much complexity. The question, therefore, is: what can models
of incomplete information add? Let us consider a sub-class of mechanisms that we call
direct revelation mechanisms. These mechanisms ask individuals to report their indi-
vidual preferences. We will show later in why direct revelation mechanisms are important
and why we are able to focus on this particular subclass of mechanisms. In such cases,
we might imagine that the dierences between complete and incomplete information may
have a signicant impact as asking individuals to reveal their preferences introduces a
strategic decision which may depend on the information an individual has. In addition
to this motivation, models of incomplete information can test o-boundary results and
test the stability of results we obtain from complete information models.
Hopefully, we have convinced the reader that models of incomplete information are
interesting to study and can add signicantly to our understanding of complete informa-
tion models. The rst set of models we will look at were proposed by Alvin E. Roth in
1989.
3 An Early Model of Incomplete Information, 1989
This rst paper by Roth begins by reviewing complete information two-sided markets and
then moves on to construct a general framework of an incomplete matching model. Given
the nature of incomplete information games, Roth further explores notions of equilibrium
and dominant strategies and compares these to the complete information case. In the
following sections, we will take a closer look at the insights gained through this study
and in each step, we will explore the implications of these insights and raise a few open-
ended questions that will help motivate the second paper, published in March 2014, which
proposes an alternative model and type of incomplete information.
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3.1 A Model of Complete Information
In two-sided, complete information matching markets, we study the matchings and out-
comes of two groups. While we typically call two-sided matching markets marriage
markets and denote each side as man or woman, this does not necessarily have to be the
case. Some examples of other marriage markets include markets where students seek
to be matched with colleges or where tenants seek to be matched with landlords.
In the most general sense, however, we can consider two-sided matching markets to
be composed of two nite, disjoint, sets dened M = {m
1
, m
2
, m
3
, ..., m
n
} and W =
{w
1
, w
2
, w
3
, ..., w
r
}. We further assume that all individuals in this market have strict
preferences represented by P(m) and P(w), meaning that an individuals preferences
produce a rank-ordering over all possible matches in the set W {m} and M {w},
respectively. A matching is therefore a one-to-one correspondence from the set of all
individuals M W onto itself where (x) is dened as the match of individual x. In
this setting, we dene being matched with oneself, or self-matching, to mean that the
individual is unmatched. In addition, we call a matching stable if there is no individual
who is matched with an unacceptable match and no two individuals who would be able
to block the matching by exiting the market and forming a match on their own that is
preferred to their respective matches under .
The marriage market, therefore, can be seen as a three-tuple consisting of all men, all
women, and the vector of all individual preferences: (M, W, P). Now let us let the set
of preferences that men and women actually choose to reveal be the vector Q where Q
does not necessarily have to correspond to P. Recall that in the direct revelation games
that we introduced earlier, the action required of each player is simply to reveal his or
her preferences. Thus Q can be seen as a set of strategies that each player plays. Given
this, we dene a set of equilibrium strategies Q, to exist when Q(i) is individual is best
response to the strategies Q
i
played by the other players. Recall that an equilibrium
strategy is only dened over the particular set of strategies that other players play in
that equilibrium. This is dierent from a dominant strategy which is the best response
to every possible strategy that other players could play.
The following impossibility theorem arises from the market above,
THEOREM 1. When there are at least two agents on each side of the market, no stable
matching mechanism exists which always makes stating the true preferences a dominant
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strategy for every agent.
But the M-optimal stable mechanism, which is equivalent to the M-proposing de-
ferred acceptance algorithm, makes it a dominant strategy for each man to state his true
preferences. And likewise, the W-optimal stable mechanism makes it a dominant strat-
egy for each woman to state her true preferences. This is a rather nice result because
while we have seen that there is no stable mechanism where it is a dominant strategy
for every agent to state his or her true preferences, in the man- or woman-optimal case,
we can ensure that at least for the proposing side, stating true preferences is a dominant
strategy.
In fact, we can go further and state that the M-optimal stable mechanism is group
strategy proof for men and the W-optimal stable mechanism is group strategy proof for
women.
THEOREM 2. Let P be the true preferences of the agents, and let
P dier from P in
that some coalition
M of the men falsify their preferences. Then there is no matching ,
stable for
P, which is preferred to
M
by all members of
M.
So far, we have talked about dominant strategies for the proposing side of any stable
mechanism and neglected the receiving side. The following theorem shows that while the
receiving side may not have a dominant strategy, there are certain preference orderings
that dominate other orderings.
THEOREM 3. When the M-optimal stable mechanism is used, any strategy Q(w) in
which w does not list her true rst choice at the head of her list is dominated by the strategy
Q
(W) which does list her true rst choice rst, but otherwise leaves Q(w) unchanged.
This concludes Roths discussion about dominant strategies and we see that the com-
plete information model gives us a rather nice set of strategies or rules of thumb that
both the proposer and the receiver can employ. The following discussion is on equilib-
rium strategies. While Roth draws attention to three main theorems on equilibrium in
complete information markets, we will focus on one in particular.
THEOREM 4. Suppose each man chooses his dominant strategy and states his true
preferences, and the women choose any set of strategies (preference lists) P
(w) that
form an equilibrium for the matching game induced by the M-optimal stable mechanism.
Then the corresponding M-optimal stable matching from (M, W, P
w
i
= v
w(i),f(j)
+p
f
j
=
w(i),f(j)
p
4.2 Stability
Stability is dened as usual, which is to say a matching is stable if it is 1. individually
rational and 2. there is no blocking pair. Stability is dened by Liu, Mailath, Postlewaite,
and Samuelson in the language of the model as such:
Given a nonempty set of individually rational matching outcomes, , a matching
outcome (, p, w, f) is -blocked if there is a worker-rm pair and payment satisfying
1. v
w(i),f(j)
+p > v
w(i),f((i))
+p
i,(i)
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2.
w
(i),f(j)
p >
w
1(j)),f(j)
p
1(j),j
for all w
satisfying:
(a) (, p, w
, f)
(b) w
1(j)) = w(
1(j))
(c) v
w
(i),f(j)
+p > v
w
(i),f((i))
+p
i,(i)
A matching outcome (, p, w, f) is -stable if it is not -blocked.
Condition 1 and 2 make intuitive sense as they state that an individual worker or
rm must be better o in the block than in his matching allocation in order to form a
blocking pair. The set represents all reasonable beliefs, which are dened in (a)-(c). (a)
states that the matching must be consistent with set , which represents all individually
rational matching outcomes. (b) states that the assignment cannot contradict with what
the rm already knows at the current state. (c) states that the match must be incentive
compatible for the worker and must be a better match for him or her.
5 Summary and Conclusions
Now weve seen two dierent ways in which incomplete information can be modeled.
The rst, a model developed by Roth, demonstrates that the element of randomness
that is introduced when individuals do not have complete information about each others
preferences leads to negations of theorems we proved in the complete information case
about equilibrium and stability conditions. However, this unfortunate result is somewhat
tempered by the fact that, at the very least, many of our conclusions about dominant
strategies still generalize nicely to the incomplete information. This rst paper establishes
the concept of incomplete information matching and shows us, with a general model, why
these types of models are interesting and important to study.
Answering the open question posed by Roth with regards to the modeling specics
of incomplete information, Liu, Mailath, Postlewaite, and Samuelson provide a collection
of conclusions about incomplete information based o of an intuitive model built upon
inferences and leveraging information about the status quo to construct a set of higher-
level beliefs. While the bulk of those conclusions are not covered in this review, it is highly
encouraged that the reader take a look at the paper as it raises some very interesting
points about stability and price-sustainable outcomes.
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References
[1] Liu, Q., Mailath, G.J., Postlewaite, A., and Samuelson, L. (2014). Stable Matching
with Incomplete Information, Econometrica, 82, 541-587.
[2] Roth, A.E. (1984). Two-Sided Matching with Incomplete Information about Oth-
ers Preferences, Games and Economic Behavior, 1, 191-209.
[3] Gale, D., Shapley, L. (1962). College Admissions and the Stability of Marriage,
American Math Monthly, 69, 9-15.
[4] Shapley, L.S. and Shubik, M. (1972). The Assignment Game. I. The Core, Inter-
national Journal of Game Theory, 1, 111-130.
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