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Al Roth on Market Design

Al Roth is a professor at Harvard (formerly the University of Pittsburgh: I still go to his house regularly, though he isn’t there anymore) who has done a lot of work in market design. His big success was work in stable matchings, and its application to the matching system between hospitals and medical residents. This work had a strong OR component: the heart of the system is the algorithm for finding stable matchings (matchings in which there is no resident, hospital pair, both of which would prefer to match with each other rather than the ones they had been assigned). You can get lots of pointers from his game theory, experimental economics, and market design page. Al recently gave a talk at Yahoo! Research as part of their Big Thinkers series. In the talk, he contrasted markets in kidneys (which I talked about a few weeks ago) with the market to match NY high school kids to schools:

Kidney transplants are necessary for end-stage renal disease, but there is a shortage of kidneys. Lack of compatibility and laws against kidney sales open up the possibility of a market designed kidney exchanged to increase the number of transplants. Roth explained the need for national exchanges as opposed to regional exchanges to increase the thickness in the market; 3-way exchanges that will add to a population of incompatible donor pairs; and opening up kidney exchanges to compatible patient-donor pairs as well.

In the example of matching students to high schools in New York City and Boston, where thickness isn’t a problem, there were too many transactions that led to congestion in the market. As many as 30,000 students in New York City were assigned to schools not on their choice list. The newly designed system incorporated a centralized clearinghouse to which students would submit their true preferences, instead of unreachable choices. The algorithm ensured that more students got accepted to their realistic first preferences and minimized the number of those rejected into their second choice pools.

As a side note, these Yahoo! (and Google) videos are a great resource: they attract the very best researchers who all obviously work very hard on their presentations.