The winners were awarded “for the theory of stable allocations and the practice of market design”.
“This year’s prize is awarded for an outstanding example of economic engineering,” wrote the Nobel Committee in a statement.
According to the Committee, this year’s Prize “concerns a central economic problem: how to match different agents as well as possible”.
Shapley made early theoretical inroads into the subject, using game theory to analyze different matching methods in the 1950s and 1960s.
Together with U.S. economist David Gale, he examined “pairwise matching,” by looking at how 10 women and 10 men could be coupled up, while respecting their individual preferences.
The studies were carried out with a focus on “stable matching” – that being the most efficient matching as possible of, for example, students with schools or organ donors with patients.
Roth was later responsible for putting Shapley’s work into practice with research carried out in the 1980s and 1990s.
“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,” the committee wrote in a statement.
Staffan Normark, permanent secretary of the Royal Swedish Academy, explained that it was the perfect match of the two economists themselves that led to their work being recognized by the Nobel Committee.
“Lloyd Shapley is a giant in the field of game theory with a huge number of fantastic accomplishments,” he told The Local.
“I think this is a good match to put these two individuals together for this prize with all the theoretical work in the beginning and you have a really practical outcome developed quite recently by Roth with, for example the kidney transplant system in matchmaking.”
“I think it’s a beautiful combination.”
Roth said he was sleeping when he got the call from the prize committee in California, where he is a visiting professor at Stanford University.
“I wasn’t expecting the prize but I was aware it was being awarded today,” he said.
“I expected that Lloyd Shapley would win the prize.”
In terms about what the prize means, he joked:
“When I go to class this morning, my students will pay more attention now,” but added it was “too early” to speculate on how the win might affect the field.
Roth said he intends to travel to Stockholm for the Nobel award ceremony in December. When asked how he would celebrate, he said: “I haven’t made any plans yet; coffee.”
Roth, 60, is a professor at Harvard University in Boston. Shapley, 89, is a professor emeritus at University of California Los Angeles.
The Nobel Memorial Prize in Economic Sciences was the last of the 2012 Nobel awards to be announced.
It’s not technically a Nobel Prize, because unlike the five other awards it wasn’t established in the will of Alfred Nobel, a Swedish industrialist also known for inventing dynamite.
The economics prize was created by the Swedish central bank in Nobel’s memory in 1968, and has been handed out with the other prizes ever since. Each award is worth 8 million kronor ($1.2 million).
Last year’s economics prize went to U.S. economists Thomas Sargent and Christopher Sims for describing the cause-and-effect relationship between the economy and government policy.
The 2012 Nobel Prizes in medicine, physics, chemistry and literature and the Nobel Peace Prize were announced last week. All awards will be handed out on December 10th, the anniversary of Nobel’s death in 1896.