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Alvin Roth Receives Economics Nobel For Flawed Residency Match System

There’s a larger question here about why the scholarly world allows itself to be judged by secretive Scandinavian committees sitting on endowments funded by money made selling explosives. But let’s put anti-Nobel polemics aside.

The announcement today that Alvin Roth and Lloyd Shapley won this year’s award in economics came with the explanation that they had devised systems for matching buyers and sellers that led to more rational outcomes than existing markets.

Shapley, a contemporary of “A Beautiful Mind’s” John Nash, introduced an elegant theory 50 years ago to explain the (relative) stability of marriage pairings despite the fact that individuals have complicated preferences when choosing a mate. Shapley’s idea is that the person you end up with is the best match given everyone else’s preferences.

You might prefer someone else more than your current mate, but that person has you lower on her list, and so on. Imagine Larry. If he could Larry would have definitely married Elizabeth Taylor. But she was taken so now Larry is happy with his actual wife. (To sum it up in a way that would make an economist cringe.)

Alvin Roth built on that early theory. He designed actual markets that used the matching principle, also known as the deferred acceptance algorithm, as a guiding principle. The most famous example of a Roth market is the Residency Match.

Medical residency is a job that lasts three to seven years, depending on the program, and follows graduation from medical school. It is required for a doctor to complete a residency in order to be licensed to practice.

In the “old days” medical students would apply to hospitals and rank their preferences in a way that was visible to those institutions. A hospital would first review those applicants who had indicated them as the first choice. If spots remained to fill, a hospital would then look at those who had picked it second, and so on. You can quickly see how this system punished people who shot high and missed. They would end up at one of their last choices because the best places would fill up quickly.

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