Trading kidneys, repugnant markets and stable marriages win the Nobel Prize in Economics

Roth and Shapley charted a course for economists to go beyond simply arguing for markets in everything.

The 2012 Nobel Prize in Economics - technically the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, but nobody cares - has been awarded to two American Economists, Alvin Roth and Lloyd Shapley "for the theory of stable allocations and the practice of market design". The Nobel Committee explains what that means:

This year's Prize concerns a central economic problem: how to match different agents as well as possible. For example, students have to be matched with schools, and donors of human organs with patients in need of a transplant. How can such matching be accomplished as efficiently as possible? What methods are beneficial to what groups? The prize rewards two scholars who have answered these questions on a journey from abstract theory on stable allocations to practical design of market institutions.

Lloyd Shapley used so-called cooperative game theory to study and compare different matching methods. A key issue is to ensure that a matching is stable in the sense that two agents cannot be found who would prefer each other over their current counterparts. Shapley and his colleagues derived specific methods – in particular, the so-called Gale-Shapley algorithm – that always ensure a stable matching. These methods also limit agents' motives for manipulating the matching process. Shapley was able to show how the specific design of a method may systematically benefit one or the other side of the market.

Alvin Roth recognized that Shapley's theoretical results could clarify the functioning of important markets in practice. In a series of empirical studies, Roth and his colleagues demonstrated that stability is the key to understanding the success of particular market institutions. Roth was later able to substantiate this conclusion in systematic laboratory experiments. He also 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, such as the preclusion of side payments.

Even though these two researchers worked independently of one another, 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. This year's prize is awarded for an outstanding example of economic engineering.

The committee have yet again reaffirmed the old adage that the most important thing to do when trying for a nobel prize is to live long enough that your achievements are recognised. The Gale-Shapley algorithm, for instance, was devised in 1962, when Lloyd Shapley was 34. It concerns a maths problem known as the stable marriage problem: if you have an even number of men and women, can you always come up with a set of marriages where there are no two people of opposite sex who would both rather have each other than their current partners? (1960s maths problems: usually heteronormative.) If you can, then the marriage is "stable".

The Gale-Shapley algorithm is a way of always ensuring stable matches; and much of Shapley's work covers the same areas, straddling the boundaries between economics, mathematics, and computer science.

Roth is the younger of the two winners, and works in a far more empirical sphere. As the committee points out, although the two men never actually collaberated, Roth took Shapley's theoretical work and applied it to actually existing markets. For instance, Roth used the Gale-Shapley agorithm to ease the kidney shortage in the US. David Wessel explains (£):

As of noon yesterday, 58,470 people in the U.S. were waiting for a kidney transplant. Most won't get one this year. There aren't enough donated kidneys to go around. Surgeons transplanted just 15,129 kidneys last year. Now a band of transplant surgeons and economists are trying to fix that by creating a moneyless market for exchanging kidneys. Most transplanted kidneys come from a person who has died, a supply that grows slowly because of ignorance about the need for donations or grieving relatives' reluctance. But a kidney taken from a live donor works better, and almost everyone has a spare. As techniques improve for removing healthy kidneys and for suppressing the body's tendency to reject a transplant, doctors increasingly turn to kidneys from living donors, usually relatives. Last year, 43% of kidneys transplanted in the U.S. came from living donors, up from 28% a decade ago. But a biological barrier often blocks a transplant from a relative. In about a third of all would-be pairs, blood types are incompatible. In others, the sick person has antibodies that can initiate a rejection of the donated organ. It's heartbreaking "to have the treasure of the live donor and then have that not go forward because of a biological obstacle," says Massachusetts General Hospital transplant surgeon Francis DelMonico.

Occasionally, transplant centers spot a way out: One New England father with blood type A couldn't donate a kidney to his daughter with blood type B. So he gave a kidney to a teenager with blood type A, and the teenager's sister gave a kidney for the man's daughter. New England's transplant centers have done six such exchanges. Baltimore's Johns Hopkins University has done seven.

The crucial thing about Roth's work, from an economic point of view, is that it involves finding stable allocations using market-like situations without involving money. The kidney swaps in the New England situation are market-like, trading kidneys for kidneys in a way that makes all parties better-off, but they don't actually require kidneys to be bought and sold.

We can see the importance of this by looking at another paper of Roth's, not cited by the committee, on repugnance in markets (pdf). Roth demonstrates that some markets are limited because the very existance of a market in some goods is considered repugnant. He argues, for instance, that the trade in horse meat being banned in California is not done through fears that eating horse meat is unsafe; nor is it done for animal welfare reasons, since it is still legal to farm and kill horses. But banned it is, and Roth argues that the natural response of economists to situations of this type - to argue for freer markets - is wrong, since it ignores the very strong feelings involved in the situation. Instead:

Being aware of the sources of repugnance can only help make such discussions more productive, not least because it can help separate the issues that are fundamentally empirical—like the degree of crowding out of altruistic donations that might result from different incentive schemes compared to how much new supply might be produced—from areas of disagreement that are not primarily empirical.

Hopefully his new Nobel Prize should give that argument greater weight in the years ahead.

A patient receives a kidney in Johns Hopkins university in Baltimore. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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The government must demand that Iran release Nazanin Zaghari-Ratcliffe

Iran's imprisonment of my constituent breaches the Convention on the Rights of the Child.

I grew up with a very paranoid mother. She had tragically lost members of her family as a teenager and, as a result, she is extremely fearful when it came to her children. I used to laugh at her growing up – I indulged it but often scoffed at her constant need to hear from us.

A few days ago, I was in Parliament as normal. My husband, his parents and our baby daughter were all in Parliament. This rare occasion had come about due to my mother in law’s birthday – I thought it would be a treat for her to lunch in the Mother of Parliaments!

The division bells rang half way through our meal and I left them to vote, grabbing my phone of the table. “See you in ten minutes!” I told them. I didn’t see them for more than five hours.

The minute the doors bolted and the Deputy Speaker announced that we were indefinitely being kept safe in the chamber, all I could think about was my daughter. In my heart of hearts, I knew she was safe. She was surrounded by people who loved her and would protect her even more ferociously than I ever could.

But try explaining that to a paranoid mother. Those five hours felt like an eternity. In my head, I imagined she was crying for me and that I couldn’t be there for her while the building we were in was under attack. In reality, I later found out she had been happily singing Twinkle Twinkle little star and showing off her latest crawl.

That sense of helplessness and desperate impatience is hard to describe. I counted down the minutes until I could see her, as my imagination ran away with me. In those 5 hours, I started thinking more and more about my constituent Nazanin Zaghari-Ratcliffe.

Here I was, temporarily locked in the Parliamentary chamber, surrounded by friends and colleagues and door keepers who were doing all they could to keep me safe. I knew I was going to be let out eventually and that I would be reunited with my daughter and husband within hours.

Nazanin has been detained in the notorious Evin prison in Iran for nearly a year. She only gets an occasional supervised visit with her two-year-old daughter Gabriella. She’s missed Christmas with Gabriella, she missed Gabriella’s second birthday and no doubt she will be missing Mother’s Day with Gabriella.

But it’s not just the big occasions, it’s the everyday developments when Gabriella learns a new song, discovers a new story, makes a new friend. Those are the important milestones that my mother never missed with me and the ones I want to make sure I don’t miss with my daughter.

Unfortunately, Nazanin is just one of many examples to choose from. Globally there are more than half a million women in prison serving a sentence following conviction, or are awaiting trial. Many of these women are mothers who have been separated from their children for years.

In 2010, the United Nations General Assembly unanimously adopted the Bangkok Rules - the first international instrument to explicitly address the different needs that female prisoners have. It was also the first instrument to outline safeguards for the children of imprisoned mothers.

The Bangkok Rules apply to all women prisoners throughout all stages of the criminal justice system, including before sentencing and after release. However, Nazanin’s case has seen a wilful flouting of the rules at each and every stage.

Rule 23 states that ‘Disciplinary sanctions for women prisoners shall not include a prohibition of family contact, especially with children’. Tell that to her daughter, Gabriella, who has barely seen her mother for the best part of a year.

Rule 26 adds that women prisoners’ contact with their families shall be facilitated by all reasonable means, especially for those detained in prisons located far from their homes. Tell that to her husband, Richard, who in almost a year has only spoken to his wife via a few calls monitored by the Iranian Revolutionary Guard.

Iran has ratified the Convention on the Rights of the Child and supported the Bangkok Rules, yet it is breaching both with its treatment of Nazanin. It is therefore incumbent upon our government to take the formal step of calling for Nazanin's release - it is staggering they have not yet done so.

As I pass the window displays in shops for Mother’s Day, most of the cards have messages centred around ‘making your mother happy’. If there’s one mother I’d like to make happy this year, it’s Nazanin Zaghari-Ratcliffe.

Tulip Siddiq is Labour MP for Hampstead and Kilburn