This Year's Nobel Prize for Economic Engineering

Congratulations to Al Roth and Lloyd Shapley for winning the Nobel Prize in Economics this morning for their work in market design and matching theory (emphasis mine):

[Their work relates] to how people and companies find and select one another in everything from marriage to school choice to jobs to organ donations. 

Their work primarily relates to markets that do not have prices, or at least have strict constraints on prices. In classical economics, prices are the main mechanism through which resources are allocated. The laureates’ breakthroughs involve figuring out how to properly assign people and things to stable matches when prices are not available to help buyers and sellers pair up.

Mr. Roth, 60, has put these theories to practical use, in his work on a program that matches new doctors to hospitals and more recently for a project matching up kidney donors. Public school systems in New York, Boston, Chicago and Denver, among other cities, use an algorithm based on his work to help assign students to schools. A professor at Harvard, he recently accepted a new position at Stanford...

Mr. Shapley, 89, a mathematician and economist long associated with game theory, is a professor emeritus at the University of California, Los Angeles. He made some of the earliest theoretical contributions to research on market design and matching, in the 1950s and 1960s. He looked at why, in a free market, it was sometimes difficult for individuals to come to an agreement about proper matches. 

Read the whole thing.

I originally considered using the Gale-Shapley matching model for the foundation of my research on marriage markets.  While I ended up eventually going with a more Beckerian approach, it was a great introduction to market design literature and of much help in my work on agent-based models.

Try out this animated demonstration of how the Gale-Shapley model works.  Here is more analytical version.  Wikipedia has a nice write up of the stable marriage problem.  Read Gale-Shapley's original paper on matching markets, which is a highly accessible.

Be sure to check out Roth's webpage on game theory, experimental economics, and market design.  And also see his blog, Market Design.  As far as I know, Roth is the first academic blogger to win the Nobel Prize.  (Paul Krugman is also a blogger, but to a more general audience.)

Alex Tabarrok has a some great commentary on the importance of Roth's and Shapley's work.

Forbes has a profile of Roth and Wikipedia of Shapley. (HT Tyler Cowen)

See is the official Nobel Prize webpage announcing the prize.

More thoughts on today's prize from Seven Levitt and Peter Klein.

So what exactly does it take to win a Nobel Prize?  Some suspect it might have something to do with eating lots of chocolate...