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2 Americans win Nobel econ prize for match-making

2 Americans win Nobel econ prize for match-making

October 15th, 2012 in News

STOCKHOLM (AP) - Two American scholars won the Nobel economics prize Monday for work on match-making - how to pair doctors with hospitals, students with schools, kidneys with transplant recipients and even men with women in marriage.

Lloyd Shapley of UCLA and Alvin Roth, a Harvard University professor currently visiting at Stanford University, found ways to make markets work when traditional economic tools fail.

Shapley, 89, came up with the formulas to match supply and demand in markets where prices don't do the job; the 60-year-old Roth put Shapley's math to work in the real world.

Unlike some recent Nobel prizes - such as the Peace Prize that went to the embattled European Union last week - this year's economics award did not seem to send a political message.

"It's all about down-to-earth, highly useful stuff," said Robert Aumann, a professor at Jerusalem's Hebrew University who won the 2005 economics Nobel. "We're talking about the nitty-gritty of health care and education - which medical students are assigned to which hospitals. We're talking about how to arrange donors of kidneys."

Shapley made early theoretical inroads into the subject, using game theory to analyze different matching methods in the 1950s and "60s.

In a groundbreaking 1962 paper, Shapley and the late David Gale looked at how to match 10 men and 10 women in perfectly stable marriages.

They created a model in which no two people liked anyone else better than each other.

While that may have had little impact on marriages and divorces, the elegant algorithm they developed has been used to better understand many different markets.

Building on Shapley's work, Roth applied it decades later to the market for allocating doctors, creating an algorithm that led to the redesign of the National Resident Matching Program that pairs fourth-year medical students with hospitals.

"Before Roth, it was not unusual to not get any of your first three or four choices," said David Warsh, who follows university economists in his Economic Principals blog. "After Roth hooked up this new algorithm, almost everyone got what they wanted."

Roth also successfully applied the formula to New York City's public schools, ensuring that fewer students ended up in schools that were not among their top choices. Now, noted Susan Athey, a Stanford University economist, "there are school districts all over the country that are considering these matching procedures."

The algorithm has also been used to match kidneys with patients who need transplants.

Before Roth, "there were no economists in that business at all," Warsh says. "He's really changed it and saved a lot of lives."

Roth looks at cases where prices can't be used to match supply and demand. In some markets - such as organ transplants - society recoils at the notion of a product or service going to whoever can pay the highest price.

"Al has spent a lot of time studying markets where things don't work out," says Roth's former student, Parag Pathak, now an economist at the Massachusetts Institute of Technology.

"It's not like we could just buy and sell kidneys, and people can't buy their way into public schools. So standard economic models don't apply."

Prize committee member Peter Gardenfors said the winners' work could also be applied to other areas, such as allocating housing to students or refugees.

"There are economic problems that can't be solved with normal market mechanisms," Gardenfors said. "With these matchings, there is no money involved so the main thing is to follow what kind of preferences people have - who wants to be matched with whom - and find a good solution to that."