What’s the best way to match donated kidneys with those in need of transplant? How can you sort New York City students into high schools? To solve these problems, you will need market design and matching theory. And if you are Lloyd Shapely or Alvin Roth, developing these theories will win you the Nobel Prize. Shapely and Roth built upon each other’s economic models to solve hypothetical situations like transplant and school examples posed above.
Their elegant solutions — Roth decreased New York students assigned to schools for which they had no preference by 90 percent — caused the Nobel Committee to take notice. In awarding the 2012 Nobel Prize for Economics, the Committee noted, "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."
But what does market design and matching theory mean? The Takeaway host John Hockenberry asked Alvin Roth, a visiting professor at Stanford University and a Professor of Economics and Business Administration at the Harvard Business School, to explain his work.
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