Nobel economics prize a welcome nod to match-makers

October 16, 2012

By Viktoria Dendrinou

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Efficient match-making could be the unimaginative name of an online dating service. But it can also refer to the work by 2012 Nobel laureates Alvin Roth and Lloyd Shapley on matching methods and market design. The two American economists worked separately from one another, but their combined work builds a theoretical and empirical framework for efficient matching, the applications of which can help with many real-life problems.

Lloyd Shapley, a theoretical game theorist, developed models to compare different stable allocations in matching methods. In his research, stability is the state where two agents would not prefer another counterpart than the one they have been matched with. For better results, agents’ motives for manipulating the matching process are taken into account

Alvin Roth, a more empirical and younger academic, built on Shapley’s models and worked on applying them to real-life problems, such as trying to match thousands of doctors annually with U.S. hospitals during their first year of employment, and, similarly, organising the repartition of teenagers in New York City high schools. To non-economists, his best-known project is perhaps designing efficient matchings between organ donors and recipients. The central idea suggests a successful ’kidney exchange’ could take place between incompatible pairs. Each donor is incompatible with their partner but could be compatible with another donor who is also incompatible with their partner. If applied successfully, the mechanism could be applied to multi-way transplants, where donors and partners are matched from multiple different pairs.

This Nobel prize should be greeted by economists across the spectrum and be consensual enough to avoid the ideological debates that greeted previous laureates. While Shapley’s work is more abstract and theoretical – features which often draw criticism, Roth’s empirical research supports the theories’ applicability. The fact that they have little or no relevance to markets or the current global turmoil may have stunned pundits who expected finance experts to snatch the prize. But this less controversial choice offers a pleasant break from the never-ending discussions on financial regulation.

More importantly, the award must be welcomed because efficient matching offers practical solutions to fix broken systems and even save lives. This cannot currently be said of most other economic research fields.

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