Adverse Selection in BDSM Clubs

In last week’s Savage Love Podcast, Dan Savage responds to a 22-year-old female caller who digs BDSM. Her problem is that when she goes to BDSM clubs, she can’t find any young, attractive men. Instead, she mostly finds creepy, gross, dirty old men. In answering, Dan says:

[T]here’s a lot of attractive people into S&M, they’re just not necessarily at the BDSM clubs. … A lot of attractive people will dip in for a minute and say, “Wow, y’know, everybody here is way out of my league -- way, y’know, under my league.” And they don’t tend to come back, which makes the problem worse when the next objectively hot hottie comes along.

To which my reaction was, of course, “Adverse selection! Dan’s talking about an adverse selection problem!”

But this isn’t your run-of-the-mill adverse selection, which usually happens in a context of asymmetric information. For instance, adverse selection can happen in used car markets because sellers know more about the quality of their cars than do buyers. As a result, sellers have to assess used cars by their average (not individual) quality. But in the BDSM club, one can quickly assess the age and hotness of specific people (or so Dan’s caller leads us to believe). So why can’t the hots simply pair up with other hots, and the nots with other nots?

The problem arises because people choose where to go based on their expectations about the quality distribution. If hot people into BDSM think there’s a reasonable likelihood of finding other hot people at the BDSM club, they will go there. If not, they will go elsewhere. And by not attending, they reduce the likelihood of hot people being there, thereby inducing other hot people not to attend either. The resultant unraveling leads to a club filled almost entirely with icky (or at least unimpressive) people.

So why doesn’t this problem happen at all clubs, not just the BDSM clubs? Well, to an extent it does. In some bars, you won’t find many attractive people. But there are other clubs filled with attractive people. You might expect the same kind of sorting to happen with BDSM clubs. The problem, I suspect, is caused by thin markets -- that is, markets in which the number of players is too small to generate the usual efficiency gains. People into BDSM are, I assume, a relatively small fraction of the general public; nevertheless, there are enough to create a demand for BDSM clubs, at least in large cities. But multiply the fraction of people into BDSM by the fraction of people who are attractive (by some standard of hotness), and you get a fraction small enough that it’s hard to get a thick market going. As a result, potential club-goers must consider the possibility that there might not be any attractive targets on any given night, and that leads to adverse selection.

I have not seen adverse selection explicitly connected to thin markets in any textbook I can recall, though a quick Google search for both terms pulls up a number of papers that appear to bring them together.