Two U.S. economists share the Nobel Prize for Economics for their work in economic engineering, the Royal Swedish Academy of Sciences said Monday.
Alvin E. Roth and Lloyd S. Shapley received the honor for their work on "the theory of stable allocations and the practice of market design," the academy said in a release.
Shapley used the cooperative game theory to study and compare different matching methods, the academy said. Shapley and his colleagues derived specific methods, the Gale-Shapley algorithm, that always ensures a stable matching while limiting the chance for manipulating the matching process. Shapley showed how the specific design of a method may systematically benefit one or the other side of the market.
Roth and his colleagues, using the work Shapley had done, demonstrated stability is the key to understanding success of specific market institutions, the academy said. Roth substantiated this conclusion in systematic laboratory experiments and helped redesign existing institutions for matching new doctors with hospitals, students with schools, and organ donors with patients.
These reforms are all based on the Gale-Shapley algorithm, along with modifications that take into account specific circumstances and ethical restrictions, the academy said.
The two researchers worked independently of each other, the academy said. Shapley's basic theory and Roth's empirical investigations, experiments and practical design generated a field of research and improved the performance of many markets, the academy said.
Roth, born 1951, earned his doctorate in 1974 from Stanford University. He is a George Gund Professor of economics and Business Administration at Harvard University and Harvard Business School.
Shapley, born in 1923, earned his doctorate in 1953 from Princeton University. He is professor emeritus at University of California in Los Angeles.
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