Noble Nobel

I don't quite understand how one predicts the Economics Nobel but I'm pretty sure it's easy to figure out who's not getting it. Just do the usual rounds of the internet during the lead up and you'll be able to cross out a few very well known names. 

So of course I was surprised when the announcement was made. Nash, Harsani and Selten got it in 1994, while Aumann and Schelling got it in 2005 and now Roth and Shapley. The official announcement states that it was for, "the theory of stable allocations and practice of market design" but it's a lot more than that. 

Shapley reminds me, in a way of Nash (they both overlapped at Princeton). I read somewhere that when informed of the decision, he stated that he had never taken an economics course in his lifetime. Pure mathematics, nothing more powerful and perceptive. 

Along with the Shapley value, the Bondareva-Shapley theorem , the Shapley–Shubik power index, the Gale–Shapley algorithm (for the stable marriage problem), the concept of a potential game, the Aumann–Shapley pricing, the Harsanyi–Shapley solution, and the Shapley–Folkman lemma & theorem bear his name

Aumann, in his 2005 lecture, considered Shapley to be "the greatest game theorist of all time". In 1995, Albert Tucker said that he felt Shapley was only second to Neumann in game theory research. 

Essentially, when I think of Shapley, I think of the Shapley value which is the foundation for determining gains in cooperative games. In a set of players (where some may have greater control over an outcome/gain or some may contribute more to the overall outcome), you can assign a unique distribution to each element. i.e: how important is each player in the game and what pay-off can he/she expect based on his/her contribution/power etc. 

Shapley offered decades of fascinating research in analyzing outcomes. The area in relevance due to the Nobel in fact, is the Gale-Shapley theorem or the Stable Marriage Problem. Simply put, it ensures pair-wise matching between a man and a woman such that no pairing is unstable (there are no two people of opposite sex who would rather have each other over their current partners). You can see how it works in practice here.

Think about the implication of such a system. You could match employees into departments based on the preferences of either side. You could match children choosing schools if you navigated or equalized the entry-process. What if you could match kidneys between donors and recipients?

That's where Alvin Roth comes in. Steven Levitt stated that, "When I talk about economists, one of the greatest compliments I give is to say that they changed the way people think about the world." 

Thanks to Roth, if John needs a kidney but his sister Jill is incompatible - they could find Molly, a willing donor who matches with John, and whose brother Mike is compatible with Jill. Which makes you immediately think about a three way swap, or a multi-swap, could you design this for n-participants?

Anyway, there are A LOT of tributes, accolades and information on the both of them.

1)  Ben Walsh over at Counterparties has this short piece which is nicely titled "Economists who did good".

2)  Josh Keating at Foreign Policy further explores Roth's paper on Repugnance and why it could be a constraint on markets. Think of it this way, as Roth provides an example. In California, it's illegal to eat horses but it's not illegal to kill them - just not to eat them. Yet, some people in California are from societies where eating horse meat is normal...

3)  Matthew Yglesias at Slate has a more focused piece on the matching issues, and why the lack of money and prices is why it works. 

4)  Alex Tabarrok at Marginal Revolution has perhaps the most succinct yet informative piece on the two. He focuses on the stable marriage issue, it's weaknesses, how they can be overcome and why the future is open to more wonders. 

5)  Joshua Gans at Digitopoly says, "Here is an economic theorist who hasn’t just made things more efficient. He has actually saved lives. It is unclear whether it is the economics Nobel he deserved or the Nobel prize for medicine." Strong praise indeed. 

6)  Mark Thoma has an agglomeration of the above as well as a very brief summary of the two. He concludes by saying that, "Even though these two researchers worked independently of one another, 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."

7)  Dylan Matthews at EK's Wonkblog has more detail, especially on Shapley but also on Roth.

8)  Susan Adams had this well written piece on Roth back in 2010 that focuses more on the school-matching issue.

9)  Leon Neyfakh has a detailed story back in 2011 on how Roth fixed a breaking process of matching young doctors with hospitals (the NRMP program). 

I think I'd like to conclude with the fact that we get so caught up in terms of what is relevant with respect to the world we live in, what can or cannot be applied today and all those if-and-but questions that it's easy to forget the power of an intuitively brilliant theory and the impact that its practical application may have. 

To Shapley and Roth.