'Economic Engineering' Earns Two Americans a Nobel Prize

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The Nobel Prize for Economics has been awarded to Americans Alvin Roth and Lloyd Shapley for work that has helped to craft more efficient and stable markets.

Shapley, who was educated at Princeton and taught at UCLA, created the Gale-Shapley Algorithm, which is method for matching counterparties in a more efficient manner. (His partner, David Gale, died in 2008.) The goal is to match everyone in a market with a partner, such that there is no other partner that either side would prefer to be matched with. 

Roth was the first to put Shapley's theories into practice by designing real experiments to test his conclusions, then by building matching systems that had real-world applications. Roth has helped to build matching programs that pair New York City students with public schools and organ donors with patients in need. Roth was a long time professor at Harvard Business School, but was lured back to his alma mater, Stanford, this fall. Together, their worked has proved there are methods for matching "agents" in more efficient ways and that doing so can make entire markets more stable. The prize committee called their achievement "an outstanding example of economic engineering."

Technically, the pair has won "The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel," but the the award is still considered part of the Nobel family and they will split a $1 million cash award, just like the other 2012 laureates.

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