Markets actually work best when people just pick the 'popular' thing instead of trying to be perfectly rational all the time.
March 25, 2026
Original Paper
Dynamic Matching with Popularity Bias and Stochastic Errors in Anonymous Markets
SSRN · 6461702
The Takeaway
While economists usually view 'popularity bias' (following the crowd) as a market failure, this model shows it is necessary to reach the maximum number of successful matches in decentralized markets. The same 'behavioral bias' that creates winners-take-all markets is actually what provides the signal needed for the market to work at scale.
From the abstract
Can biased agents reach efficient outcomes in decentralized markets? We study this question in a dynamic model of an anonymous bipartite economy with heterogeneous capacities, where agents seek an optimal number of partners and may revise relationships over time. We introduce popularity bias – the tendency to favor already-popular alternatives – into the matching process through two channels: as rational preference for popular partners (conditional on maintaining one’s desired number of links) a