October 16, 2012 Leave a comment
On Monday, October 15th the Royal Swedish Academy of Sciences announced the winners of final Nobel Prize of the year, Alvin E. Roth of Harvard University and Lloyd Shapley of UCLA. The two economists were honored for their complementary work on “market design” and “matching theory”, theories which have practical uses in matching everything from students and schools to kidneys and transplant patients. The telephone call alerting the winners was “very unexpected, not unimaginable” for Roth, a professor currently teaching at Stanford who still taught class the morning after the Prize was announced.
Dubbed a form of “economic engineering” by the committee, these celebrated theories are derived from a free market approach which allows demand and supply to bring consumers and producers together to begin the stable allocation process for a good. This work is expanded upon by the professors by introducing market designs mimicking the free market into real-world situations. In fact, their theories are components in software programs that have been used as models for school choice process in New Orleans, Boston, and New York. Hospitals are also employing their matching theory in matching incompatible kidney donors with compatible pairs to form a market swap that benefits both parties. This intuitive system is incredibly useful in streamlining and simplifying the matching process into an algorithm and has the potential to aid in virtually any situation where a pair is needed.
Roth and Shapley mark the second year in a row of American winners of this prize. 2011 awardees Thomas J. Sargent of New York University and Christopher A. Sims of Princeton University were honored for their research on a cause-and-effect relationship between government and economic policy. Certainly, both theories have practical implications for American life and offer important insights into economic choices made every day in the lives of American citizens. Perhaps these winnings will even encourage more American students to pursue studies in STEM education and the sciences. In the words of Roth, “I’m sure when I go to the class this morning my students will pay more attention.”
Posted by Sophia Higgins