This year’s Nobel Memorial Prize in economics has been awareded to Americans Alvin Roth and Lloyd Shapley. Roth, who was honored for his work at Harvard, is now at Stanford and Shapley is a professor emeritus at UCLA. The Nobel committee honored the pair for their work in “the theory of stable allocations and the practice of market design.”  

As complicated as their work sounds, it actually turns out to be quite practical. Parag Pathak is an economist at MIT and co-director of the Market Design working group at the National Bureau of Economic Research. He says Roth and Shapley’s work in market design has focused primarily on matching up markets, like coordinating school assignments for students: “A lot of urban areas have these resource allocation systems that involve students ranking schools and schools ordering students…and what market design tries to do is come up with a way to match the demand — that’s the students ranking the schools — with supply — that’s the schools ranking the students.”

Pathak adds, “You don’t buy and sell school seats,” says Pathak, “that’s why we have to be very careful about how we match up demand and supply.”