A guide to directed search

Directed search: Matching partners with pricing data

Randall Wright, Philipp Kircher, Benoit Julien, Veronica Guerrieri 07 January 2018

Search models have vastly improved our knowledge of important market events that aren’t explained by classical economic theory, however they have a tendency to treat price formation as an afterthought. This column introduces a survey of the literature on ‘directed search’, which aims to keep carefully the explanatory power of search models but permits a meaningful role of prices in determining where people visit a trading partner.