Markets in everything: the roommate/rent dilemma

Stephen Dubner at Freakonomics asks how three roomates should split their Manhattan rent when the rooms vary widely in size. Suggestions included splitting it by square foot, or rotating rooms.

As an economics blog, I’m surprised not to see an economics answer: let the (miniature) market decide.

In college, my roommates and I (one other economist, a biologist and a business major) faced the same room size dilemma. The fix? We bid on the biggest/smallest rooms until we were all satisfied with our abode and our price. There was never a regret in the two years we lived together.

Of course, I’m the person at age 10 whose Dad gave him a T-account on the fridge and received debits and credits instead of an allowance. So maybe my approach to household decision making is a little different from the rest of the world…

5 thoughts on “Markets in everything: the roommate/rent dilemma

  1. My 2 roommates and I are economics grad students and have given the same problem a good deal of thought. The pure bidding setup is problematic.

    The first intuition (of an economist) is to have a second price auction for the biggest room. The losers then have a second price auction for the next biggest room (if not everyone has the same orderings over preferred rooms, it gets tougher).

    The problem is in the dual-budgets you have to balance. We have 3 guys and $X of rent, so Walras’ Law says we can have at most 2 independent prices. In a standard second price auction, you have the right incentive for truthful revelation, but in this setup, you have an incentive to overbid. If the second highest guy overbids by $1, he decreases the rent on the other two rooms by $1.

  2. This has already been addressed in the literature, e.g. Velez, Fairness and Externalities.

  3. We adopted a Rawlsian ‘veil of ignorance’ approach to room allocation. None of us could afford much more than $250 and all of us preferred to have a larger room.

    We had a friend design an ‘Feast of Greatness’ afternoon, during which we competed in a series of trials that tested irrelevant skills. I didn’t get the big room, but I felt better knowing that my housemate’s wallet wasn’t strained.

  4. I’m about to move in with a bunch of economists (and one starving artist) and we’ve gone about the housing search knowing that we’d divide up rooms this way, with some kind of auction.

    As Brock said, there is no perfect way to do it, but I think you can get pretty close informally.