On how to find the perfect couple (2012 Nobel Prize in Economics)
As announced yesterday by the Swedish academy, the recipients of the 2012 Nobel Prize in Economics are
Angela Merkel and the German Government Al Roth and Lloyd Shapley.
Their research has mainly focused on the stable allocation of resources in markets where prices are inexistent. They focused on two-sided markets where monetary exchanges would be inappropriate (i.e. patients-kidney donors or the two individuals in a marriage) and figured out the way to strike non improvable (stable) matches.
As we wait for Nico to come up with a Chuck Norris joke on this, we can point you to Al Roth’s blog . In yesterday’s entry he said that his daily post could be delayed, and on Sunday Roth had written a post on the correlation between national chocolate consumption and per-capita Nobel prizes
(Belgium is the exception that confirms the rule) (there is, however, a correlation which seems even stronger than the chocolate one: if you’re a US citizen, a Harvard Professor, and your research is on game theory then it’s pretty clear that you’ll get a Nobel sooner or later!).
We could also recommend you to read Shapley’s seminal paper on Long term competition (a game theoretic approach) (if you do, please tell us what it says, because we can’t really read equations!).
Now, since you probably won’t read neither Roth’s blog nor Shapley’s 1992 paper, and since the only think in this post that caught your attention was that they figured out the best way to find the perfect match in marriage, that’s where we will focus on:
In a 1962 paper Shapley and Gale assumed a market in which men propose to women (a debatable assumption as it is a bit male-chauvinist and also leaves out people who wish to stay single, gay and bisexual people and a bunch of other “real life stuff”), in which each individual has views about what their ideal couple should be like, but in which those views do not lead to perfect matching [otherwise a bunch of us would be matched to Monica Bellucci or Bar Refaeli, and that can't work; or could it?? (note to my girlfriend: this is only a joke mandated by our editorial line; don't worry)]. Shapley and Gale stood up for the proposition that an stable result could only be attained if women applied a “deferred acceptance” strategy. This would work as follows:
First, men would propose to their favorite woman. This means that Monica and Bar (which is how Nico and I call them in private) would have multiple choices but that other women would have less or zero choice, which (even if certainly acceptable by some of us) is unfortunately not stable. Instead of accepting their favorite “candidate”, they argue that women should ”pocket” the strongest offer without accepting it and reject all others. Rejected men would then make a second proposal, which would allow women to stick to their previous pick or to replace it by one of the new candidates. Shapley and Gale proved that, if repeated enough times [1st round Monica Bellucci, 2nd round Bar Refaeli... 1456th million round Snowwhite's evil stepmother -with two notable exceptions-] the algorithm will lead to stable non-improvable matches.
Sure this doesn’t seem to “match” the real world and, although intellectually interesting, its practical application seemed doubtful (and discouraging!). But Roth figured out that Shapley’s algorithm could have enormous practical applications on students-schools, patient-donors, and doctors-hospitals. A great example where the intelectual beauty of economics results in very practical solutions to real problems that truly affect peoples lives. In sum, a very deserved prize.