What can online dating teach you about economics?

More than you might think.

Turns out online dating (or, say, the marketplace of life partners) operates a lot like other markets, says Paul Oyer, an economics professor at the Stanford Graduate School of Business and author of Everything I Ever Needed to Know About Economics I Learned From Online Dating.

According to Oyer, you can see everything from why executives "sugarcoat" their company's situations to why qualified candidates remain jobless, reflected in the world of online dating.

Ears perked? Ours were too.

Below, Oyer shares some of the insight he gained through his own forays into the online dating world. Hey, it worked for him: Ultimately Oyer met his match online.

LearnVest: First of all, what does online dating have to do with economics?

Oyer: I'm a labor economist, so when I found myself back on the dating scene, it became clear to me that online dating is a marketplace.

On a dating site, lots of members mean lots of available potential matches. Assuming the algorithm of each site you visit is good at matching members, if you're given 10 matches from a site with 100 members and 10 from a site with 10,000, bigger is better. You'll see more options over time, and the matches will likely better suit you.

This is what is called a "thick market" — one with a lot of options — and a thick market is usually more efficient. In the book, I use the example of buying a pair of jeans: If you have an hour to shop, would you rather be in Manhattan or in a rural community? The city, of course, because there are more options and more chances you'll find what you need.

Keeping the idea of thick markets in mind, aren't small, niche sites inefficient?

The thing is, you can be a generalist dater or a specialist dater. If you have a deal-breaker requirement and will only consider dates who fulfill that — for example, a certain passion or religion — then you're a specialist dater, and your personal thick market is a specialized site such as ChristianMingle or JDate, because everyone there meets your basic criteria.

If you choose to be a specialist dater, you should know that these targeted sites are more viable options in densely populated areas, where there are a larger number of people with special interests in the region and there are enough people to provide an appropriately thick market.

In your book, you explain that dishonesty in an online profile makes economic sense. Why is that?

Economists think of lying as a rational thing to increase utility, or happiness. Where parties' interests aren't completely aligned, we expect some people will misrepresent the truth.

A large portion of lying on dating sites is a rational response to try to improve the number of responses a profile gets. Even if you're determined to be 100 percent honest when setting up an online profile, you should expect that your competition is fudging the truth.

It comes back to a theory called "cheap talk," which is a branch of game theory. This framework considers the potential conflict between a party's own preferences and the person he or she is trying to attract, to analyze when (or if) it's sensible to hide information or lie. This could take the form of a dater misrepresenting himself online, or an executive sugarcoating things to boost their stock prices.

Wouldn't an executive "sugarcoating things" be… an outright lie?

To be rational, the truth can only be mildly off-base. Executives can't stretch the truth beyond belief, just like you can't say you're 29 and show up as a 50-year-old. When it's immediately obvious that you aren't telling the truth, people will be less likely to believe what you say in the future.

Investors face the same thing. It's like an analyst who says positive things about his firm's stock. He'll swear up and down that it has been performing well — otherwise, he'll scare off investors. While disclosures may have changed after the economic collapse, there's no question people who have more to gain will say something positive.

Could you explain your theory of "romantic unemployment"?

It comes from a type of search theory, which is a situation where people can't find exactly what they want, even if it is out there somewhere, because the act of searching itself is so costly.

The difficulty of this two-sided search leads to what I call romantic unemployment, because we see this with the job market. Job seekers hold out for better opportunities. Firms hold out for better candidates. Because of search theory, there are eligible and attractive single people and talented potential employees who are unemployed. In both cases, search is a two-part process in which both parties are considering their options. For both groups, there is a penalty for being picky.

Romantic unemployment doesn't seem very romantic!

Economics is the study of scarcity. With online dating, the scarce resource is time. You can get caught up easily if each time you decide whether to evaluate more profiles, you think, But what if The One is in this next batch?

If we could see all our choices and assess them at no cost to us, everything would be easy and we'd each have the best possible match. But when you go to this marketplace to shop, you have to spend time going through your options, or profiles. Sure, you might keep finding better dates and trading up. But at a certain point, according to search theory, it's no longer worth the trouble — most of us have something else we need, or want, to be doing with our time.

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