Eight recipients of the medal of honor. So it is very difficult. What happens often times they heroism is recognized, but not at the highest level or to the silver star or the bronze star very few people are in the middle. He would almost for sure say that he didnt deserve it. He might point out to somebody else that was more heroic than he was he was very humble. He never talked about the Carnegie Medal and when i interview people that knew him when i did the book a long time ago people knew him well and i said what about the Carnegie Medal and they didnt know anything about it. He earned his medals and was very modest. He didnt think that he deserved it so he never talked about it and i think that he would have been the same way. Ive known a lot of medal of honor recipients in the foundation and most of them will tell you i didnt deserve this and it should have been given to somebody else. Its a piece of humility we all can learn from and he would have been in that category. For more information on the booktv visit to augusta and the other cities visited by the local content vehicles go to cspan. Org local content. A professor of economics at stanford and recipient of the 2012 nobel prize economics looks at how different markets work. This is next on booktv. [inaudible conversations] lets get started. [inaudible] its my great pleasure to welcome you for an evening with alan roth. We are the policy institute so those of you that have not been here she then moved into the house [inaudible] this has served. So come as an academic economist, ive often been confronted with skepticism outside of the profession in particular among the economic. My instinct is to check. One is for the work on matching. Add to illustrate the value it is useful for telling us what is not achievable. So we have our own rankings over a number of policies. How do we aggregate fees as a whole . It is logically impossible to come up with one that satisfies the requirements of fairness and democracy. But all is not lost. True democracy may be impossible but that relationships in the outreach. [laughter] added the fundamental and exciting work in the markets. When we think about the markets, we look at the neck net of the crisis which does a good job for the consumers that value than the most. But what if they had feelings, have feelings, too mac and they could accept or reject . And what if there were limitations on the payments come how then could we set up the markets for the individuals in the best possible way . For the models of the complex markets and as it applies to the real world particularly on the successful redesigning. I am a huge fan and i have one of the memories of attending as a graduate student and its great to have him here to speak about his new book and his work. Hes the professor of economics at stanford where he runs the Operations Research in 1974. He has held at the university of illinois and the university of pittsburgh. In 2012 he won the prize of economics. And im also happy to welcome the chief Program Officer [inaudible] using the versions of evaluation. He has had a very illustrative career. He received a phd from mit and since then allowing many other things hes been a professor at the college and served on the Editorial Board of the New York Times had worked as the founding director of the center for the economic studies. I had the pleasure of hearing him speak at the conference about the shortage and the possibilities. Between him and [inaudible] that will be followed by the book signing and reception taking place upstairs. Thank you. [applause] i would like to thank the audience that comes out for the buck on economics. [laughter] you laugh and thats because he would know that economics is supposed to be boring. But i never understood why that should be the case. Its always seemed to me that its the best kind of gossip and you look at the choices that confront them and they might have confronted you if you had chosen a different career or Different School or made other choices coming and that might also have been traces that you still have to make. And why a book is about market design economics that is an ancient activity. Upon markets are deeply. They were thousands of miles away and it means that they were before the invention of agriculture so people have been doing the markets for a long time. They are ancient artifacts and i think of them as being a little bit like languages which are also the artifact but we mostly dont think about the language is artifacts because we dont think that we can modify them. And speaking to you in english and i wrote my book in english but it is as i received it. I dont free to modify english. The markets are a little bit different because they have proprietors and influential groups of users so it is more amenable. And markets have designs. The markets have rules and the rules by which they were part of their designs. Just like there are lots of different languages, there are lots of different kinds of markets. So what i have in my book are matching markets and they are quite a bit different than the Commodity Markets that we often think about. Because when we think about Commodity Markets, we are thinking about those in which the prices do all the work. And the reason they can do all the work in the welldesigned commodity market is that you dont have to care who you are dealing with. When you buy 100 shares of at t on the New York Stock Exchange come you dont care who you are dealing with or if they are taking good care of the shares. The important thing is the price the matching markets are markets in which you cant just choose what you want. Think about the college emissions in the university and its its expensive to go to Stanford Stanford doesnt raise the tuition until just enough kids would like to enter the classes. The price they charge lots of people like to come to stanford so theres all kinds of institutions so you cant just choose to go to stanford you have to be admitted. Stanford cant just choose who will come. They have to compete with and like you and all the other wonderful universities. You have to be hired and google cant just choose, they have to compete with facebook. They are still around and there are markets that work differently than the Commodity Markets and i want to talk about the design of the markets but before i do let me make sure they also have to be designed so the board of trade makes winter wheat. Before there were commodity definitions like that come you have to inspect because they hit hard wheat and soft wheat but by the time it is modified as part of the market design. If we are studying is too big of a subject. We would study the conversations and Television Shows so there are places that they have happened and they are also the parts that are most amenable to designing. So the markets run by rules and today they are almost ubiquitous we dont carry marketplaces and you can get them on ebay and amazon and they will match travelers to drivers. You can go on link them to help you find a job. They are all matching markets. Theyll have to be chosen shot. The prices may be for some of these things but they dont determine who gets what. There are other institutions that determine who gets the job. And ebay to start off as an auction site. So what do the marketplaces have to do to facilitate . What makes a marketplaces successful . First it has to make it safe so that you can find those that have things you need or want what you have. Then you have to deal with the problem of congestion so they are not really there if you cant consider them so theres lots of stuff. Congestion can be up hard congestion can be up hard problem. Each controls very few so if we go to the hotels and call to see if they have a room you have to ask by room number and can only inquire up one room at a time. Friday night, room 27. Sorry, room 27 is booked that night. How about 28. Each one offered very few rooms. So if you would have to ask about it at the very hard but when somebody inquires they can take it away so they dont have to wait until they come home to work and come from so it is a market thats hard to imagine how it could have worked before. When you think about technology and making the mark ubiquitous. But if you had to reserve it would be a lot like on the telephone to get it from the Street Corner while youre standing on you are standing on the street you can use the applications of one of the things we are seeing is that technology is changing the way we deal with these problems and how to get them together to deal with congestion and safety and reliability and trustworthiness so one thing you could worry about is paying the taxi driver bill. They are less anonymous than outweigh. Speak to. But they know who you are. If i were interested i would say we would sign up as a driver so you wont run off when you get to the destination so a lot of what they do is not only do they have to make the markets and then successfully deal with congestion and a big market they have to make them safe and simple. One is amazon. You can buy from lots of different sellers. It is a host of market places and you buy from them so it turns out they have trouble dealing with them. The planning for the department of education what he was concerned about is getting 85,000 new york was congested as the market you still couldnt access. But it would ask each and the second choice and third choice and that would constitute the applications of they would know. Then they would make decisions as they please get back say please get back to us on which one so that we can make the spots available. The process was too slow so the 17,000 of multiple offers and about 30,000 didnt get one by the end of august so it was congested there was also a safety problem because if you could decide to admit that meant it wasnt safe to reveal your school was your first choice because then you might miss the chance. So today it makes it safe to reveal the practice and that helps the congestion but the chance of getting the second choice is the same as the first so you dont lose the chance to. Speech you didnt go [inaudible] then she says they will be making matches and so it goes on and doesnt seem so hard. It was created for making managers but he thinks it is as hard as dividing the red sea, so matching is important and i didnt write the book this way but when i wrote it as a matching market and the way that useful than it turned out in the proposal but i have proposed that along the way it and it is good to start with neonatal transplants. Its not just so you have the big picture. Sometimes one of the things they can find out is that its working properly but if they would need a heart transplant it was important for you to use on the waiting list for the hard right away and he wanted your patients to have priority but of course sometimes one would become available while the patient was still a fetus and baby couldnt be it was too early but if it was late enough you could do this is very amanda transplant and that meant that the scarce hard would go with babies with a lower birth rate and when an adult is on the waiting list the longer you are on the longer you will need it but the baby is getting healthier and healthier and coming to full term so this is the case mac stuff survived transplant [inaudible] and it comes full circle with how we allocate at the end of his life but that isnt my editor looked at it and said boring. [laughter] so i made i found the markets around us fascinating. [applause] [inaudible] what is the best way to engage and people want to take a risk. When i ran at the time one of the hardest is to describe why they ran the nobel prize because when you try to translate it sounds like the price of that. But you describe in the book but it takes to make them work. You have a clearinghouse theres nothing in the market etc. You describe something called the acceptance algorithm. What did you do . What was the contribution . How did you translate that so that they could be assigned etc. What did you do . Spec i did a couple of things. One of them i discovered before they began it has been discovered in particular the residency match that had more than a decade and it was much more difficult to describe but it was the equivalent. Knowing that allowed me to understand the clearinghouse function if served to the market , so in the 1900 if you are a doctor and medical school you went and looked for a job at hospitals started to compete with each other for the residency is and students were getting their first jobs around christmas time there last year of medical school and there was an effort to make sure that it didnt go any further for the players to compete with each other in that way so many were being hired before the graduation and he could have gotten an a in anatomy in the surge and great job as a surgeon and then discover that you faint at the sight of blood. So lots of markets have failed in that way and controlled the timing but it was hard to consider multiple offers and things worked solidly for many years until the couples started to be part of the labor force. But what i found early on is that they solved the problems in the marketplace and that is what led to this. So you didnt get to come here a lot. Another thing when it sought to redefine when it was related by trial and error medical students in the United States were all men and then there were about 10 of women and today theres about 50 and one of the things about being in medical school is you have time to marry your classmates. [laughter] so there are a lot of students married to each other and therefore have two jobs and one of the things we have to figure out how to do is help them find two jobs together. Hispanic [inaudible] thats a little tricky. What we tell you about that. What they did in 1962 is they wrote a paper called College Admissions and the stability of marriage is about a simple model they basically talked about marriage and College Admissions. How do you match many of women into supposing you were trying to match them, what requirements would have to have been . If you suggest you want people to follow through if the peace table in the following sense there shouldnt be too people not married to each other but the speaker to be married to each other because of the weather case they could marry each other instead of doing as you suggested and it turns out thats an important property for many markets and they found a way to do that. Then couples started to appear in the market and one thing in the clearinghouse its very successful and what i mean by successful no one had to go through but when you looked at after a few years almost all would go through and they were being employed at the hospitals that were suggested so they were producing a suggestion and you have been matched to the following students, please exchange. 95 of the jobs were being filled. The students were where they were supposed to be. When couples started, they were somewhere else and they try to accommodate them and they understood there were couples have needed two jobs so the 1970s are a long time and the way that the Community Try to facilitate to help them match each other is first they had to be certified then they have to decide one of the members was the leading member and each submitted a list this is my first choice, second choice, then they went through and the other member had his or her list what is going on is the iron law of marriage which says you cant be happier than your spouse. So suppose that we are looking for two jobs. We have to create jobs in new york and as our second choice we have two great jobs in San Francisco and a slightly less good job and so forth but when you do this where do you get one great job and lost in. We were wondering before [inaudible] sylvia davis restore the stability and make sure that we would ask them if they wanted it and asking what is your first choice and second choice and what is the first choice as a couple and what is the second. Until you ask that question you cant possibly get [inaudible] it is a reflection as to why in the third world country [inaudible] should we think of these as the matching doesnt quite work and what is the message you want the readers to take away from your book . You see it in a different way they eat different things. I would like people to look at a markets a little differently. They are not just a Farmers Market theres all sorts there is all sorts of ways we interact with each other that when you see it in their detailed you understand more about them so for example let me describe to you how the different restaurants are organized and after i describe it to you you will be able to tell me what color tablecloth. So restaurant number one that suggestion is in the kitchen so you need a reservation to get a seat. You are seated immediately but it takes a while for the food to come so you are asked if you would like wine or cocktail and you place your order and converse and then the food comes after a while and later you were asked if you want each displayed and later the bill is brought to you and put on the credit card and the server comes and goes so theres a lot of interaction with the server in a restaurant. Restaurant number two doesnt take reservations and when you arrive you tell how big the party is and gives you an estimate of 20 minutes and give you a teacher and you wonder around until the meal is ready, im sorry, until the table is ready. They can see as soon as possible and gets up and leaves. And as soon as you sit down your order is immediately taken and quickly brought in as you are finishing her desert papering the check and put it on the table and you get up and go to the Cash Register and whatnot. And the third restaurant is the lineup for a cashier, tell them what they want, pay for it, carry your food tray table and eat, get rid of your tray. Simultaneously he you order what you want and so those are the restaurants that deal with congestion in different ways. Number one is in the kitchen they cooked to order and cant have more people than the kitchen accommodates. Number two they just cook a lot of the food well in advance and the tables are in short supply. They cook the food and water make the interaction fast and of course the tablecloths are white, its a fancy restaurant, they are not plastic checkered like the one where they serve you and someone else gets up and the other is like a mcdonalds. So that the bird eats fish and bird eats worms. You can see they all deal with congestion. They deal with matching their capacity to the customer