For economists, prices are like magic. They send all kinds of signals about who wants what, and how badly they want it. Prices are what make markets work so well in so many settings.
But there are some things we don't want to put prices on. We don't pay organ donors. Children attend public high schools for free. Medical residents get paid a fixed stipend no matter where they do their hospital training.
This creates a challenge: What's the best way to match organ donors with recipients (when someone wants to give a kidney to a friend, but is not a good genetic match); kids with high schools (in big urban districts with many high schools and many kids); or medical residents with teaching hospitals (when medical residents are married couples and don't want to live thousands of miles apart)?
This year's Nobel (memorial) prize in economics just went to two guys who figured out how to answer questions like these. Lloyd Shapley is a game theorist who wrote some really influential papers in the '60s. Decades later, Alvin Roth took that work (and what came after it) and figured out how to solve problems in the real world.
"This is a multi-generation Nobel," Justin Wolfers tweeted this morning. " First, Shapley generated the theory. In the next generation, Roth delivered the practical applications."
Further reading:
* The Nobel people have lots of info; this explainer (PDF) is particularly helpful.
* The Boston Globe had a good story last year explaining Roth's real-world work. Here's a similar story from Forbes.
* Alex Tabarrok at Marginal Revolution has a primer this morning on the ideas that led to this year's prize.
* Here's a (long) video of a talk Roth gave at Google. Includes the provocative question, "Why can't the Google cafeteria serve horse meat?"
* Roth has his own blog, Market Design (This morning's headline: "Blog May Be Delayed Today...)
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