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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Fears over Notting Hill Carnival reveal more about racism than reality

Statistically, the event is about as safe as Glastonbury.

Notting Hill carnival is terrifying. As soon as the sun sets, gangs emerge ready to prey on unsuspecting attendees with Red Stripe cans fashioned into knives. Children barter for drugs. Dancing is punctuated by ceremonial burials for those killed in between every dancehall tune. And that's just on the kids’ day.

Except, it's not true. Statistically, the event is about as safe as Glastonbury - if not safer, judging by the number of arrests. In 2015, Glasto was praised for its low arrest rate (75 arrests for a crowd of 135,000), but in the same year carnival had ten times the capacity and fewer than ten times the offences.

Despite these statistics, the police, MPs and newspapers seem desperate to paint carnival as a gang-run danger zone. The Met Police recently tweeted about a kilo of heroin seized in the run up to carnival, despite not even knowing whether the perpetrators were going to the event. MPs, such as former Kensington MP Victoria Borwick, are happy to fuel this fire, claiming to be concerned about the supposed “year on year increase in violence and physical harm to our police officers and members of the public”. Newspapers revel in publishing large spreads about the raids in the run up to the two days, despite lacking evidence they’re even connected. Break this down and it’s clear: this dislike towards carnival roots itself in racism - the presumption that a festival celebrating black, West Indian culture, frequented by a higher proportion of black British punters, must inevitably, be violent.

I have been attending carnival since the age of six, when my parents moved to the area (90s gentrification alert). I used to sell Ribena for a markup on my street, took part in the float my primary school ran and every year witnessed the incredible recontextualisation of the area. Gone is the whitewashing for a moment: the streets and houses become splattered in neon paint, jerk chicken boxes and Red Stripe cans. It is one of the best things to happen to the area, and its vast cultural value exceeds the bougie cafes and boutique clothing stalls that span the area.

And yet, every year, I have to dodge questions from relatives and friends about how dangerous it supposedly is. “Ooh, Notting Hill carnival. Bit scary, isn't it? Lots of angry youth who can get quite violent I hear. Didn't someone get stabbed last year?” Perhaps a viable question to ask anyone going to a crowded event. Except, why weren’t they asking me this when I flew to Amsterdam this year to go to a music festival?

There's another side of critiquing carnival that is equally infuriating, and that's that the fact that the event in some ways stands as a consolation prize to the original tenants of the area. In the middle of the 20th Century, Notting Hill was far from the Russian oligarch haven it is today. It was the Windrush Era, when black immigrants began arriving from the Caribbean. They came not out of some overwhelming desire to be freezing for 11 months, but because Britain was struggling after the Second World War, and desperately needed a labour force. Despite the demand, the West Indians were met with hostility and racism, forced to live in the worst areas of London. One of those places was Notting Hill.

Imagine, then, the audacity of shaming carnival. Imagine being forced by racism into a rundown neighbourhood, turning it into something fashionable, and then being priced out by middle-class white people. Imagine on top of that, having your legacy celebration degraded under the guise of safety concerns.

This year will feel different. It will be the first year ever under a Labour MP. It will also come two months and a half months after the Grenfell fire, where many of its residents and victims will have taken part in the event. Whilst there’s something defiant in these parades, it will be hard for the collective joy not to be marred by a knowledge that somewhere in this borough, bodies are being buried because of our council.

We need to see carnival for what it is: a celebration of a culture struggling to stay afloat in the area. Kensington continues to edge out those who may not be living in £2.5m homes - whether it’s with rising house prices, creating anxiety around an event or even putting lives at risk due to sheer disregard and greed. If you’re worried about going, I would avoid all large, crowded events in general, because there’s no use believing the vacuous and racist hype. Beyond getting splattered with paint and dancing too enthusiastically to Bashment, there’s nothing to fear.