Chapter 8
When a Market Fails

An Example from Online Dating

In centuries past, a yenta, or matchmaker, performed a very important task in traditional society. A man or woman (and their parents) would tell the yenta to “find me a find, catch me a catch,” as the song in Fiddler on the Roof put it. To narrow the playing field for her clients, the yenta made sure she knew everything possible about the young people and their families (which is why the word “yenta” eventually became synonymous with “gossip” or “blabbermouth”). Once she found a few likely fits, she introduced the prospective husbands and wives and their families to each other. The yenta ran an efficient, viable business, and she was paid for her services as a matchmaker (or “market maker” in economics-speak) who brought people together.

Fast-forward to the mid-1990s—a world without yentas (and, in most Western societies, without arranged marriages) but before the rise of online dating. Ideals of romance and individual freedom prevailed, which also meant that each person who wanted to find a mate was pretty much left to his or her own devices. For example, I remember well the trials of a friend I’ll call Seth, who was smart, funny, and more or less good-looking. He was also a new professor, which meant that he worked long hours in order to prove that he had the right stuff to achieve tenure. He rarely left the office before eight or nine at night and spent most of his weekends there as well (I know, because my office was next to his). Meanwhile, his mother would call him every weekend and needle him. “Son, you work too hard,” she would say. “When are you going to take some time to find a nice girl? Soon I’ll be too old to enjoy my grandchildren!”

Since Seth was very smart and talented, it was within his power to meet his professional goals. But his romantic goals seemed out of reach. Having always been the scholarly type, he could not suddenly become a barfly. He found the idea of placing or answering a personal ad distasteful. His few colleagues in the university town he had recently moved to were not particularly social, so he didn’t go to many dinner parties. There were plenty of nice female graduate students who, judging by the way they glanced at him, would undoubtedly have been happy to date him, but if he had actually tried to do so, the university would have frowned upon it (in most settings, office romance is similarly discouraged).

Seth tried to participate in activities for singles. He tried ballroom dancing and hiking; he even checked out one religious organization. But he didn’t really enjoy any of those activities; the other people didn’t seem to enjoy them much either. “The hiking club was particularly strange,” he later told me. “It was obvious that no one there cared to explore the great outdoors. They only wanted to find potential romantic partners who enjoyed hiking, because they assumed that someone who likes hiking will be a good person in many other ways.”

Poor Seth. Here was a great guy who could have been very happy with the right woman, but there was no efficient way to find her. (Don’t worry. After a few lonely years of searching, he finally did meet his mate.) The point is this: in the absence of an efficient coordinator such as a yenta to help him, Seth was a victim of market failure. In fact, without exaggerating too much, I think that the market for single people is one of the most egregious market failures in Western society.

SETH’S TRAVAILS OCCURRED before the emergence of online dating sites, which are wonderful and necessary markets in principle. But before we examine this modern version of a yenta, let’s consider how markets function in general. Essentially, markets are coordination mechanisms that allow people to save time while achieving their goals. Given their usefulness, markets have become increasingly centralized and organized. Consider what makes supermarkets super. They save you the hassle of having to walk or drive to the baker, butcher, vegetable stand, pet store, and drugstore; you can efficiently buy all the things you need for the week in one convenient place. More generally, markets are an integral and important part of each of our lives, down to the most personal choices.

In addition to markets for food, housing, jobs, and miscellaneous items (also known as eBay), there are also financial markets. A bank, for example, is a central place that facilitates finding, lending, and borrowing. Other market players, such as real estate brokers, for example, try in a yenta-like way to understand the needs of sellers and buyers and match them properly. Even the Kelley Blue Book, which suggests market prices for used cars, can be thought of as a market maker because it gives buyers and sellers a starting point for negotiation. In sum, markets are an incredibly important part of the economy.

Of course, markets continuously remind us that they can also fail, sometimes dramatically—as Enron demonstrated in the energy market, and as many banking institutions showed in the subprime mortgage crisis of 2008. Overall, however, markets that allow coordination among people are fundamentally beneficial. (Obviously, it would be much better if we could design markets in ways that would provide us with their benefits but not their drawbacks.)

THE MARKET FOR single people is one area of life in which we have gradually moved away from a central market and into a situation in which each individual must take care of him- or herself. To realize how complex dating can be without an organized market, imagine a town in which precisely one thousand singles live, all of whom want to get married (sounds a little like an idea for a reality television show, actually). In this small market—assuming there is no yenta—how do you determine who is the ideal match for whom? How would you pair each couple in a way that would guarantee that they would not only like each other but stay together? It would be ideal for everyone to date everyone else a few times to find their ideal match, but ruling out a mega-speed-dating event, that would take a very long time.

With this in mind, allow me to reflect on the current circumstances for singles in American society. Young people in the United States relocate more than ever for the sake of school and careers. Friendships and romantic attachments that flourished in high school are abruptly cut off as the fledglings leave home. Much like high school, college offers a milieu for friendship and romances, but those often end as graduates strike out for jobs in new cities. (Today, thanks to the Internet, companies frequently recruit across vast, geographically dispersed distances, which means that many people wind up working far away from their friends and families.)

Once graduates land their far-flung positions, their free time is limited. Young, relatively inexperienced professionals have to put in long hours to prove themselves, particularly in the competitive job market. Interoffice romances are generally inadvisable, if not prohibited. Most young people change jobs frequently, so they uproot themselves, yet again disrupting their social lives. With every move, their developing direct and indirect relationships are curtailed—which further hurts their chances of finding someone, because friends often introduce one another to prospective mates. Overall, this means that the improvement in the market efficiency for young professionals has come, to a certain extent, at the cost of market inefficiency for young romantic partners.

Enter Online Dating

I was troubled by the difficulties of Seth and some other friends until the advent of online dating. I was very excited to hear about sites like Match.com, eHarmony, and JDate.com. “What a wonderful fix to the problem of the singles market,” I thought. Curious about how the process worked, I delved into the world of online dating sites.

How exactly do these sites work? Let’s take a hypothetical lonely heart named Michelle. She signs up for a service by completing a questionnaire about herself and her preferences. Each service has its own version of these questions, but they all ask for basic demographic information (age, location, income, and so on) as well as some measure of Michelle’s personal values, attitudes, and lifestyle. The questionnaire also asks Michelle for her preferences: What kind of relationship is she looking for? What does she want in a prospective mate? Michelle reveals her age and weight.* She states that she is an easygoing, fun vegetarian and that she’s looking for a committed relationship with a tall, educated, rich vegetarian man. She also writes a short, more personal description of herself. Finally, she uploads pictures of herself for others to see.

Once Michelle has completed these steps, she is ready to go window-shopping for soul mates. From among the profiles the system suggests for her, Michelle chooses a few men for more detailed investigation. She reads their profiles, checks out their photos, and, if she’s interested, e-mails them through the service. If the interest is mutual, the two of them correspond for a bit. If all goes well, they arrange a real-life meeting. (The commonly used term “online dating” is, of course, misleading. Yes, people sort through profiles online and correspond with each other via e-mail, but all the real dating happens in the real, offline world.)

Once I learned what the real process of online dating involves, my enthusiasm for this potentially valuable market turned into disappointment. As much as the singles’ market needed mending, it seemed to me that the way online dating markets approached the problem did not promise a good solution to the singles problem. How could all the multiple-choice questions, checklists, and criteria accurately represent their human subjects? After all, we are more than the sum of our parts (with a few exceptions, of course). We are more than height, weight, religion, and income. Others judge us on the basis of general subjective and aesthetic attributes, such as our manner of speaking and our sense of humor. We are also a scent, a sparkle of the eye, a sweep of the hand, the sound of a laugh, and the knit of a brow—ineffable qualities that can’t easily be captured in a database.

The fundamental problem is that online dating sites treat their users as searchable goods, as though they were digital cameras that can be fully described by a few attributes such as megapixels, lens aperture, and memory size. But in reality, if prospective romantic partners could possibly be considered as “products,” they would be closer to what economists call “experience goods.” Like dining experiences, perfumes, and art, people can’t be anatomized easily and effectively in the way that these dating Web sites imply. Basically, trying to understand what happens in dating without taking into account the nuances of attraction and romance is like trying to understand American football by analyzing the x’s, o’s and arrows in a playbook or trying to understand how a cookie will taste by reading its nutrition label.

SO WHY DO online dating sites demand that people describe themselves and their ideal partners according to quantifiable attributes? I suspect that they pick this modus operandi because it’s relatively easy to translate words like “Protestant,” “liberal,” “5 feet, 8 inches tall,” “135 lbs.,” “fit,” and “professional” into a searchable database. But could it be that, in their desire to make the system compatible with what computers can do well, online dating sites force our often nebulous conception of an ideal partner to conform to a set of simple parameters—and in the process make the whole system less useful?

To answer these questions, Jeana Frost (a former PhD student in the MIT Media Lab and currently a social entrepreneur), Zoë Chance (a PhD student at Harvard), Mike Norton, and I set up our first online dating study. We placed a banner ad on an online dating site that said “Click Here to Participate in an MIT Study on Dating.” We soon had lots of participants telling us about their dating experiences. They answered questions about how many hours they spent searching profiles of prospective dates (again, using searchable qualities such as height and income); how much time they spent in e-mail conversations with those who seemed like a good fit; and how many face-to-face (offline) meetings they ended up having.

We found that people spent an average of 5.2 hours per week searching profiles and 6.7 hours per week e-mailing potential partners, for a total of nearly 12 hours a week in the screening stage alone. What was the payoff for all this activity, you ask? Our survey participants spent a mere 1.8 hours a week actually meeting any prospective partners in the real world, and most of this led to nothing more than a single, semifrustrating meeting for coffee.

Talk about market failures. A ratio worse than 6:1 speaks for itself. Imagine driving six hours in order to spend one hour at the beach with a friend (or, even worse, with someone you don’t really know and are not sure you will like). Given these odds, it seems hard to explain why anyone in their right mind would intentionally spend time on online dating.

Of course, you might argue that the online portion of dating is in itself enjoyable—perhaps like window-shopping—so we decided to ask about that, too. We asked online daters to compare their experiences online dating, offline dating, and forgetting about the first two and watching a movie at home instead. Participants rated offline dating as more exciting than online dating. And guess where they ranked the movie? You guessed it—they were so disenchanted with the online dating experience that they said they’d rather curl up on the couch watching, say, You’ve Got Mail.

So it appeared from our initial look that so-called online dating is not as fun as one might guess. In fact, online dating is a misnomer. If you called the activity something more accurate, such as “online searching and blurb writing,” it might be a better description of the experience.

OUR SURVEY STILL didn’t tell us whether the attempt to reduce people to searchable attributes was the culprit. To test this issue more directly, we created a follow-up study. This time, we simply asked online daters to describe the attributes and qualities that they considered most important in selecting romantic partners. We then gave this list of characteristics to an independent group of coders (a coder is a research assistant who categorizes open-ended responses according to preset criteria). We asked the coders to categorize each response: Was the attribute easily measurable and searchable by a computer algorithm (for example, height, weight, eye and hair color, education level, and so on)? Or was it experiential and harder to search for (say, a love of Monty Python skits or a passion for golden retrievers)? The results showed that our experienced online daters were about three times as interested in experiential than in searchable attributes, and this tendency was even stronger for people who said they sought long-term, rather than short-term, relationships. Combined, the results of our studies suggested that using searchable attributes for online dating is unnatural, even for people who have lots of practice with this type of activity.

Sadly, this does not bode well for online dating. Online daters aren’t particularly excited about the activity; they find the search process difficult, time-consuming, unintuitive, and only slightly informative. Finally, they have little, if any, fun “dating” online. In the end, they expend an awful lot of effort working with a tool that has a questionable ability to accomplish its fundamental purpose.

Online Dating Going Awry: Scott’s Story

Think about the most organized people you know. You might know a woman who organizes her wardrobe by season, color, size, and dressiness. Or on the other, less fussy end of the spectrum, a young man who divides his laundry into categories such as “day old,” “okay for home,” “okay for gym,” and “rancid.” Across the board, people can be surprisingly inventive when it comes to systematizing their lives for maximal use, ease, and comfort.

I once met a student at MIT who adopted an extraordinary method for sorting potential dates into categories. Scott’s objective was to find the perfect woman, and he used a very complex, time-consuming system to accomplish his goal. Every day, he went online to search for at least ten women who met his criteria: among other attributes, he wanted someone who had a college degree, demonstrated athleticism, and was fluent in a language other than English. Once he found qualified candidates, he sent them one of three form letters containing a set of questions about what kind of music they liked, where they had gone to school, what their favorite books were, and so on. If they answered the questions to his satisfaction, he would advance them to the second step of a four-stage filtering process.

In stage two, Scott sent another form letter containing more questions. Again, “correct” responses resulted in advancement to the next level. In stage three, the woman would receive a phone call, during which she would answer more questions. If the conversation went well, he would move her to stage four, a meeting for coffee.

Scott also developed an elaborate system to keep track of his prospective—and rapidly accumulating—potential mates. Being a very smart, analytical fellow, he logged the results in a spreadsheet that listed each woman’s name, the stage of the relationship, and her cumulative score, which was based on her answers to the different questions and her overall potential as his romantic partner. The more women he logged into his spreadsheet, he thought, the better his prospects for finding the woman of his dreams. Scott was extremely disciplined about this process.

After a few years of searching, Scott had coffee with Angela. After meeting her, he was sure that Angela was ideal in every way. She fulfilled his criteria, and, even more important, she seemed to like him. Scott was elated.

Having achieved his goal, Scott felt that his elaborate system was no longer necessary, but he did not want it to go to waste. He heard that I ran studies on dating behavior, so he stopped by my office one day and introduced himself. He described his system and said that he knew it could be useful for my research. Then he handed me a disk containing all his data from the entire procedure, including his form letters, questions, and, of course, the data he’d collected on all the candidates he had filtered. I was amazed and a little horrified to find that he had amassed data on more than ten thousand women.

Sadly, though perhaps not surprisingly, this tale had an unhappy ending. Two weeks later, I learned that Scott’s fastidiously chosen beloved had turned down his marriage proposal. Moreover, in his Herculean effort to keep anyone from slipping through his net, Scott had become so committed to his time-consuming process of evaluating women that he hadn’t had time for a real social life and was left without a shoulder to cry on.

Scott, as it turned out, was just another casualty of a market gone awry.

Experiments in Virtual Dating

The results of our initial experiment were rather depressing. But, ever the optimist, I still hoped that by better understanding the problem, we could come up with improved mechanisms for online interaction. Was there a way to make online dating more enjoyable while improving people’s odds of finding a suitable match?

We took a step back and thought about regular dating, that odd and complex ritual in which most of us participate at some point in our lives. From an evolutionary perspective, we would expect dating to be a useful process for prospective mates to get to know each other—one that has been tried and improved over the years. And if regular (offline) dating is a good mechanism—or at least the best one we have so far—why not use it as the starting point of our quest to create a better online dating experience?

If you think about how the standard practice of dating works, it is clear that it is not about two people sitting together in an empty space and focusing solely on each other or sharing an intense objection to the cold, rainy weather. It’s about experiencing something together: two people watching a movie, enjoying a meal, meeting at a dinner party or a museum, and so on. In other words, dating is about experiencing something with another person in an environment that is a catalyst for the interaction. By meeting someone at an art opening, a sporting event, or a zoo, we can see how that person interacts with the world around us—are they the type to treat a waitress badly and not tip or are they patient and considerate? We make observations that reveal information about what life in the real world might be like with the other person.

Assuming that the natural evolution of dating holds more wisdom than the engineers at eHarmony, we decided that we would try to bring some elements from real-world dating into online dating. Hoping to simulate the way people interact in real life, we set up a simple virtual dating site using “Chat Circles,” a virtual environment created by Fernanda Viégas and Judith Donath at the MIT Media Lab. After logging on to this site, participants picked out a shape (a square, triangle, circle, etc.) and a color (red, green, yellow, blue, purple, etc.). Entering the virtual space as, say, a red circle, the participant would move a mouse to explore objects within the space. The objects included images of people, items such as shoes, movie clips, and some abstract art. Participants could also see other shapes that represented other daters. When two shapes moved close to each other, they could start an instant-message conversation. Obviously, this environment could not represent the full range of interactions one could experience on a real date, but we wanted to see how our version of virtual dating worked.

We hoped that our shapes would use the simulated galleries not only to talk about themselves but also to discuss the images they saw. As we expected, the resulting discussions resembled, rather closely, what happens in regular dating. (“Do you like that painting?” “Not particularly. I prefer Matisse.”)

OUR MAIN GOAL was to compare our (somewhat impoverished) virtual dating environment with a standard online one. To that end, we asked a group of eager daters to engage in one regular online date with another person (a process that entailed reading about another person’s typical vital statistics, answering questions about relationship goals, writing an open-ended personal essay, and writing to the other person). We also asked them to participate in one virtual date with a different person (which required the daters to explore the space together, look at different images, and text-chat with each other). After each of our participants met one person using a standard online dating process and another person using the virtual dating experience, we were ready for the showdown.

To set the stage for the competition between these two approaches, we organized a speed-dating event like the one described in chapter 7, “Hot or Not?” In our experimental speed-dating event, participants had an opportunity to meet face-to-face with a number of people, including the person they’d met in the virtual world and the person they’d met in our standard online dating scenario. Our speed-dating event differed slightly from the standard experience in another way, too. After each four-minute interaction at the tables, participants answered the following questions about the person they had just met:

How much do you like this person?

How similar do you think you are to this person?

How exciting do you find this person?

How comfortable do you feel with this person?

Our participants scored each question on a scale from 1 to 10, where 1 meant “not at all” and 10 meant “very.” As is usual in speed-dating events, we also asked them to tell us whether they were interested in meeting the person again in the future.

TO RECAP, THE experiment had three parts. First, each of the participants went on one regular online date and one virtual date. Next, they went speed-dating with multiple people, including the person they met online and the person with whom they’d gone on the virtual date. (We didn’t point out people they’d met before, and we left it for them to recognize—or not—their past encounters.) Finally, at the end of each speed date, they told us what they thought about their dating partner and whether they would like to see that person again on a real-life date. We wanted to see whether the initial experience—either virtual or regular online dating—would make a real-life date more likely.

We found that both men and women liked their speed-dating partner more if they’d first met during the virtual date. In fact, they were about twice as likely to be interested in a real date after the virtual date than after the regular online one.

WHY WAS THE virtual dating approach so much more successful? I suspect the answer is that the basic structure used in our virtual dating world was much more compatible with another, much older structure: the human brain. In our virtual world, people made the same types of judgments about experiences and people that we are used to making in our daily lives. Because these judgments were more compatible with the way we naturally process information in real life, the virtual interactions were more useful and informative.

To illustrate, imagine that you are a single man who is interested in meeting a woman for a long-term relationship, and you go out to dinner with a woman named Janet. She is petite, has brown hair, brown eyes, and a nice smile, plays violin, likes movies, and is soft-spoken; perhaps she’s a little introverted. As you sip your wine, you ask yourself, “How much do I like her?” You might even ask yourself, “How likely am I to want to stay with her in the short-, medium-, and long-term future?”

Then you go on a date with a woman named Julia. Janet and Julia are different in many ways. Julia is taller and more extroverted than Janet, has an MBA and a soft laugh, and likes to go sailing. You may sense that you like Janet more than Julia and that you want to spend more time with her, but it’s not easy to say why or to isolate the few variables that make you prefer her. Is it her body shape? The way she smiles? Is it her sense of humor? You can’t put your finger on what it is about Janet, but you have a strong gut feeling about it.*

On top of that, even if both Janet and Julia accurately described themselves as having a sense of humor, what strikes one person as funny is not always funny to another. People who enjoy the Three Stooges may not appreciate Monty Python’s Flying Circus. David Letterman fans may not think much of The Office. Fans of any of these can rightfully claim to have a good sense of humor, but only by experiencing something with another person—say, watching Saturday Night Live together, either in person or in a virtual world—can you tell whether your senses of humor are compatible.

SPEED DATING FOR OLDER ADULTS

By the way, having an external object to react to works equally well in not-so-romantic encounters. Some time ago, Jeana Frost and I tried to run some speed-dating events for older (age sixty-five and above) adults. The objective was to open up the social circles of people who had just moved to a retirement community and, by doing so, improve their happiness and health.* We expected our speed-dating events to be a great success, but the first few were failures. Lots of people registered for them, yet when they sat at tables and faced each other, the discussions were slow to start and awkward.

Why did this happen? In standard speed-dating events, the discussions aren’t particularly interesting (“Where did you go to school?” “What do you do?”), but everyone understands the basic purpose—they’re trying to figure out if the person they are talking to might be a romantic fit. In contrast, our older participants didn’t all share this underlying goal. Though some hoped for a romantic relationship, others were more interested in making friends. This multiplicity of goals made the whole process difficult, awkward, and ultimately unsatisfying.

Having realized what was going wrong, Jeana proposed that, for our next event, each person bring a personally important object (for example, a souvenir or a photograph) to use as a discussion starter. This time we could not stop people from talking. Their discussions were deeper and more interesting. The events resulted in many friendships. In this case, too, the presence of an external object helped catalyze the discussions and improve the outcome.

It’s interesting how sometimes all we need is something—anything—to get a good thing started.


At the end of the day, people are the marketing-terminology equivalent of experience goods. In the same way that the chemical composition of broccoli or pecan pie is not going to help us better understand what the real thing tastes like, breaking people up into their individual attributes is not very helpful in figuring out what it might be like to spend time or live with them. This is the essence of the problem with a market that attempts to turn people into a list of searchable attributes. Though words such as “eyes: brown” are easy to type and search, we don’t naturally view and evaluate potential romantic partners that way. This is also where the advantage of virtual dating comes into focus. It allows for more nuance and meaning and lets us use the same types of judgments that we are used to making in our daily lives.

In the end, our research findings suggest that the online market for single people should be structured with an understanding of what people can and can’t naturally do. It should use technology in ways that are congruent with what we are naturally good at and help us with the tasks that don’t fit with our innate abilities.

Designing Web Sites for Homer Simpson

Despite the invention of online dating sites, I think that the continued failure of the market for singles demonstrates the importance of social science. To be clear: I am all in favor of online dating. I just think it needs to be done in a more humanly compatible way.

Consider the following: when designers design physical products—shoes, belts, pants, cups, chairs, and so on—they take people’s physical limitations into account. They try to understand what human beings can and cannot do, so they create and manufacture products that can be used by all of us in our daily life (with a few notable exceptions, of course).

But when people design intangibles such as health insurance, savings plans, retirement plans, and even online dating sites, they somehow forget about people’s built-in limitations. Perhaps these designers are just overly sanguine about our abilities; they seem to assume that we are like Star Trek’s hyperrational Mr. Spock. Creators of intangible products and services assume that we know our own minds perfectly, can compute everything, compare all options, and always choose the best and most appropriate course of action.

But what if—as behavioral economics has shown in general and as we have shown for dating in particular—we are limited in the way we use and understand information? What if we are more like the fallible, myopic, vindictive, emotional, biased Homer Simpson than like Mr. Spock? This notion may seem depressing, but if we understand our limitations and take them into account, we can design a better world, starting with improved information-based products and services, such as online dating.

Building an online dating site for perfectly rational beings can be a fun intellectual exercise. But if the designers of such a Web site really want to create something that is useful for normal—albeit somewhat limited—people who are looking for a mate, they should first try to understand human limitations and use them as a starting point for their design. After all, even our rather simplistic and improvised virtual dating environment almost doubled the odds of face-to-face meetings. This suggests that it’s not all that difficult to take human capabilities and weaknesses into account. I would bet that an online dating site that incorporated humanly compatible design would not only be a big hit but would also help bring real, flesh-and-blood, compatible people together as well.

More generally, this examination of the online dating market suggests that markets can indeed be wonderful and useful; but to get them to achieve their full potential, we must structure them in a way that is compatible with what people can and can’t naturally do.

“SO WHAT ARE singles to do while we are all waiting for better online dating sites?”

That was the question put to me by a good friend who wanted to help out Sarah, a woman who works in his office. Obviously, I’m not a qualified yenta. But in the end, I do think that there are a few personal lessons to be learned from this research.

First, given the relative success of our virtual dating experience, Sarah should try to make her online dating interactions a bit more like regular dating. She can try to engage her romantic prospects in conversations about things she likes to see and do. Second, she might go a step farther and create her own version of virtual dating by pointing the person she is chatting with to an interesting Web site and, much as in real dating, experience something together. If so inclined, she might even suggest that they try to play some online games together, explore magical kingdoms, slay dragons, and solve problems. All of which could give them a better understanding of and insight into each other. What matters most is that she make an effort to do things she enjoys with other single people and this way learn more about her compatibility with them.

From Dating Web Sites to Products and Markets

Meanwhile, what does the failure of the online dating market imply about other failures? Fundamentally, the online dating market is a failure of product design.

Allow me to explain. Basically, when a product doesn’t work well for us, it misses the intended mark. Just as online dating sites that try to reduce humans to a set of descriptive words too often fail to make real matches, companies disappoint when they don’t translate what they’re offering into something compatible with the way we think. Take computers, for example. Most of us just want a computer that is reliable, runs fast, and can help us do the thing we want to do. We couldn’t care less about the amount of RAM, processor speed, or bus speed (of course, some people really care about these things), but that’s the way manufacturers describe their computers, not really helping us understand how the experience with a particular computer will feel.

As another example, consider online retirement calculators that are supposedly designed to help us figure out how much to save for retirement. After we enter data about our basic expenses, the calculator tells us that we will need, say, $3.2 million in our retirement account. Unfortunately, we don’t really know what kind of lifestyle we might have with that amount or what we can expect if we have only $2.7 million or $1.4 million (not to mention $540,000 or $206,000). Nor does it help us imagine what it would be like to live to a hundred if we have very little in our savings accounts by the age of seventy. The calculator simply returns a number (mostly out of our reach) that doesn’t translate into anything that we can visualize or comprehend, and in doing so it also doesn’t motivate us to try harder to save more.

Likewise, consider the way insurance companies describe their products in terms of deductibles, limits, and co-pays. What does that really mean when we end up having to get treatment for cancer? What does a “maximum liability” tell us about how much we’ll really be out of pocket if we and other people are badly injured in a car accident? Then there’s that wonderful insurance product called an annuity, which is supposed to protect you against running out of money should you live to be a hundred. Theoretically, buying an annuity means that you will be repaid in the form of a fixed salary for life (essentially, Social Security is a sort of annuity system). In principle, annuities make a lot of sense, but sadly, it’s very difficult to compute how much they are worth to us. Worse, the people who sell them are the insurance industry’s equivalent of sleazy used-car salesmen. (Though I’m sure there are exceptions, I haven’t run into them.) They use the difficulty of determining how much annuities are really worth to overcharge their customers. The result is that most annuities are a rip-off and this very important market doesn’t work well at all.

So how can markets be made more efficient and effective? Here’s an example of social loans: Let’s say you need to scrabble together money for a car. Many companies have now set up social lending constructs that allow families and friends to borrow and lend from each other, which cuts the middlemen (banks) out of the equation, reduces the risk of nonpayment, and provides better interest rates to both the lender and borrower. The companies that manage these loans take no risk and deal with the logistics of the loan behind the scenes. Everyone but the banks benefits.

The bottom line is this: even when markets are not working for us, we are not utterly helpless. We can try to solve a problem by figuring out how a market is not providing the help we expect from it and take some steps to alleviate the problem (creating our own virtual dating experience, lending money to relatives, etc.). We can also try to solve the problem more generally and come up with products that are designed with an eye for meeting the needs of prospective customers. Sadly, but also happily, the opportunities for such improved products and services are everywhere.