Markets, market algorithms, and algorithmic bias

Abstract

Where economists previously viewed the market as arising from a ‘ spontaneous order ’ , antithetical to design, they now design markets to achieve speci fi c purposes. This paper reconstructs how this change in what markets are and can do came about and considers some consequences. Two decisive developments in economic theory are identi fi ed: fi rst, Hurwicz ’ s view of institutions as mechanisms, which should be designed to align incentives with social goals; and second, the notion of market places – consisting of infrastructure and algorithms – which should be designed to exhibit stable properties. These developments have empowered economists to create marketplaces for speci fi c purposes, by designing appropriate algorithms. I argue that this power to create marketplaces requires a shift in ethical reasoning, from whether markets should reach into certain spheres of life, to how market algorithms should be designed. I exemplify this shift, focusing on bias, and arguing that transparency should become a goal of market design.