American economists, Alvin E. Roth and Lloyd S. Shapley, received the 2012 Nobel Prize in Economic Sciences, for their “theory of stable allocations and the practice of market design,” according to the Royal Swedish Academy of Sciences.
Roth and Shapley’s research improved the practice of matching limited resources, like human organs, such as kidney, heart, or liver to patients in need of organ transplant, and students to schools. Their work was designed to match the people with the available resources efficiently and reasonably, when traditional markets force is not involved.
Public and private institutions have been practicing the research in different areas. New York City and other urban districts are using the research in assigning students to high schools, in accordance with their top preferences. It is also used to match donated kidneys with patients, and to match hospitals with medical residents.
According to the Royal Swedish Academy of Sciences, “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,” although they worked independently.”
In his work, Shapley studied and compared the different matching methods, using the cooperative game theory. Together with his colleagues, Shapley developed specific methods, particularly the Gale-Shapley algorithm, to ensure a stable matching, which is a key issue in the research wherein two agents cannot be found, who would prefer each other than their current counterparts. Shapley showed that the method limited agents’ manipulation in the matching process; a specific design in a method maybe one or the other side of the market systematically.
On the other hand, Roth and his colleagues used the Gale-Shapley algorithm, with modifications considering specific circumstances and ethical restrictions, to clarify the functions of important markets in a series of empirical studies. Based on Shapley’s theory, Roth helped redesigned existing institutions, in matching new doctors with hospitals, students with schools, and organ donors with patients. His work led to the establishment of the New England Program for Kidney Exchange in 2005.
Shapley is a professor emeritus at the University of California in Los Angeles, while Roth is a professor at Harvard University.
The award in economics is officially called the Sveriges Riksbank prize in economic sciences. It was created in memory of Alfred Nobel in 1968.