When you think about economists, “stable marriage” is probably not what naturally comes to mind first.
However, this may very well be the case after this week’s announcement of the 2012 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (popularly, but wrongly — as other social scientists like to remind economists — called the Nobel Prize in Economics). A wealth of information, technical and non-technical, on this year’s laureates in Economics can be found at the website of the Nobel Prize (http://bit.ly/WcfgJN).
A lot has been written about the two winners, Americans Alvin E. Roth, 60, and Lloyd S. Shapley, 89. Much was made of the fact that an important 1962 paper co-authored by Shapley and David Gale had the title “College admissions and the stability of marriage.” However, the marriage example was just a small — albeit catchy — part of the story. The authors had set out to design a simple system that would result in efficient matching. The “Gale-Shapley” deferred-acceptance algorithm that they developed not only theoretically solved the problem but has also been shown to have practical relevance.
This is where Stanford professor Alvin Roth developed matching theory further. In the 1980s, he demonstrated that a national clearinghouse system used to make residency assignments of newly minted doctors to U.S.-hospitals was an application of the Gale-Shapley mechanism. Later, he took this a step further. The assignment system started to break down when more and more couples sought positions in the same geographic area. Roth re-designed it to be able to accommodate such requests.
He didn’t stop there. Roth, after refining his theories and mechanisms in laboratory experiments, solved real-world problems to also match students to high schools and organ donors to patients. Especially the last application (featured in this National Science Foundation video: http://1.usa.gov/ISzcse) had a profound impact on people’s lives, by improving and accelerating the matching of kidney donors with recipients.
What is so important about this year’s selection of Nobel Laureates in Economics is that it is a reminder of the power of the economic science to improve people’s lives. Not only is economic growth essential to increase living standards, which explains the significance of analyzing topics in macroeconomics (the national and global economy) and political economy (the role of institutions). At a more micro level, it is also the case that economists, rather than just studying markets, can actually improve them by designing exchange mechanisms from the outset.
Treat yourself to a lecture by Roth (available at: http://bit.ly/bZMY6J) with the title “What Have We Learned from Market Design.” You might discover that economists as social scientist are far more hands-on in making the Free Enterprise system work, than you may have realized.
In one of the many interviews that Roth has given about Gale and Shapley’s insight and his own work, he compared economists to biologists that go beyond just describing plants to actually engineering new ones.
In his own words: “We’re starting to be able to know enough about how some of those things work that in some cases, when you’ve got a market in trouble, and you think, ‘Who’re you gonna call?’ you could call an economist.”
What a reassuring statement in times of economic turmoil.
As long as you don’t assume that one call to an economist could save your marriage.
Dr. Michael Reksulak teaches economics and public finance in Georgia Southern University’s College of Business Administration. He may be reached by email at mreksula@georgiasouthern.edu.