Wiley authors win Nobel Prize for Economic Sciences

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  • Date: 15 October 2012

At 1pm today, the Royal Swedish Academy of Sciences awarded The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2012 to Alvin E. Roth of Harvard University and Lloyd S. Shapley of University of California, "for the theory of stable allocations and the practice of market design".

'This year's Prize focussed on a central economic problem: how to match different agents as well as possible, e.g. matching a patient with the best donor organ and how can such matching be achieved as effectively and as accurately as possible? Professors Roth and Shapley have addressed these issues from 'abstract theory on stable allocations to practical design of market institutions'.

'Lloyd Shapley used so-called cooperative game theory to study and compare different matching methods. A key issue is to ensure that a matching is stable in the sense that two agents cannot be found who would prefer each other over their current counterparts. Shapley and his colleagues derived specific methods – in particular, the so-called Gale-Shapley algorithm – that always ensure a stable matching. These methods also limit agents' motives for manipulating the matching process. Shapley was able to show how the specific design of a method may systematically benefit one or the other side of the market.

Alvin Roth recognized that Shapley's theoretical results could clarify the functioning of important markets in practice. In a series of empirical studies, Roth and his colleagues demonstrated that stability is the key to understanding the success of particular market institutions. Roth was later able to substantiate this conclusion in systematic laboratory experiments. He also helped redesign existing institutions for matching new doctors with hospitals, students with schools, and organ donors with patients. These reforms are all based on the Gale-Shapley algorithm, along with modifications that take into account specific circumstances and ethical restrictions, such as the preclusion of side payments.'

Although Roth and Shapley did not work together on their research, 'the combination of Shapley's basic theory and Roth's empirical investigations, experiments and practical design has generated a flourishing field of research and improved the performance of many markets. This year's prize is awarded for an outstanding example of economic engineering.'

Both Roth and Shapley have written for Wiley Journals and Books, particularly Naval Research Logistics and Negotiation Journal and their works are available here for further reading.

Roth:

http://onlinelibrary.wiley.com/doi/10.1111/j.1571-9979.1985.tb00312.x/abstract 

http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0297.2007.02121.x/abstract

http://onlinelibrary.wiley.com/doi/10.1111/j.1571-9979.1985.tb00325.x/abstract

http://onlinelibrary.wiley.com/doi/10.1111/1468-0262.00335/full

Shapley:

http://onlinelibrary.wiley.com/doi/10.1002/nav.3800080204/abstract

http://onlinelibrary.wiley.com/doi/10.1002/nav.3800140404/abstract

http://onlinelibrary.wiley.com/doi/10.1002/nav.3800090106/abstract

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