Business
2:51 am
Mon October 15, 2012

2 Americans Win Nobel Economics Prize

Originally published on Mon October 15, 2012 5:59 am

Transcript

STEVE INSKEEP, HOST:

It's MORNING EDITION from NPR News. I'm Steve Inskeep.

RENEE MONTAGNE, HOST:

And I'm Renee Montagne.

Two Americans have been awarded this year's Nobel Prize for Economics for work that has to do with matching in business, medicine and marriage. The two, whose work turned out to be a good match, are Alvin Roth of Harvard and Lloyd Shapely of the University of California, Los Angeles. They will share the $1.2 million prize.

NPR's Jim Zarroli joins us now to talk about them both. And, Jim, these men were cited for developing something called the theory of stable allocations and the practice of market design. Can you explain their work?

JIM ZARROLI, BYLINE: Yeah. This is probably one of the ones that's easier to explain than I've had in the past. The committee said this is a beautiful example of statistical theory being applied to practical use. And it has to do, you know, at a basic level with how markets work. You know, when you have a certain number of products or services to give out and a certain number of people competing for those products and services, how do you design a system that keeps everybody happy and also, especially, ends up being stable?

MONTAGNE: And so, what did the two men find out about markets and how to design them?

ZARROLI: Well, let's start with Lloyd Shapely, who is 89, which makes him one of the oldest Nobel recipients ever. Back in the '60s, he became interested in the question of how markets work, and he applied it in a theoretical way to the marriage market. In other words, how do you ensure that everybody chooses the right spouse and all the marriages are as stable as possible?

And he decided this could be also applied - what he learned could be applied in a lot of real-world situations. For instance, how do you match up doctors with hospitals? You have a certain number of physicians looking for work in North America, certain number of hospitals looking for physicians.

So, Shapely thought that traditional methods of matching up hospitals and physicians didn't work well. So he wanted to design a system where as many people as possible get what they want, and he worked with the economist David Gale of Berkeley, who died in 2008, and together they designed what became known as the Gale-Shapely algorithm, and it can be used to help design better market systems.

MONTAGNE: OK, I'm not even going to try and have you unravel exactly what that algorithm is, but he is sharing the award with Alvin Roth of Harvard, as we've just said. Why was he cited? What's the match there?

ZARROLI: Well, Roth came along a couple of decades later in the '80s, he took a look at the algorithm, he was worried about the ways in which market systems can be manipulated, and he said hospitals already had a system for choosing physicians that was similar to what Shapely talked about, but there are ways in which it was unstable. For instance, some of the physicians might state false preferences. So, he set to work building on it, trying to understand how markets work - make them as efficient as possible.

And in the real world, that translates to - give us an example.

Oh, yeah. There are a lot of ways. This has been applied, you know, to - Alvin Roth in particular used it to design, helped design a system for allocating spaces for students in New York City schools. It's also been used to try to determine how to match up donor kidneys with patients.

MONTAGNE: Right. And so, I mean, these are significant impacts in the real world.

ZARROLI: Right. And especially the kidney system is very interesting. I mean, you know, the problem is this: Let's say somebody is sick and needs a kidney, and, you know, say, his wife wants to donate one of hers, but she's not compatible. But she is compatible with somebody else that she doesn't know in another part of the world - is looking for a kidney. So, Roth basically came up with a way to match these people together. It's called the New England Program for Kidney Exchange. So, you know, again, there his work has had an immediate impact on the real world.

MONTAGNE: Jim, thanks very much.

ZARROLI: You're welcome.

MONTAGNE: That's NPR's Jim Zarroli. This morning, the Nobel Prize in Economics went to two men, Harvard's Alvin Roth and UCLA's Lloyd Shapely. Transcript provided by NPR, Copyright NPR.

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