Al Roth wins the Nobel: Put Theory to Action

Al Roth on a Busy Day

Alvin E. Roth is a Professor of Economics and Business Administration, currently at Harvard and soon at Stanford. He is one of the kindest people I know. As of yesterday, he is a Nobel laureate.

Dr. Roth’s interests include “game theory, experimental economics, and market design” says the Harvard website. But Dr. Roth became famous for putting economic theory to work – in the real world. He has designed and redesigned markets and institutions for better performance. Dr. Roth has changed how doctors and hospitals find each other, how students are assigned to high schools, and how kidney patients are matched with a donor.

Putting theory to work is risky. Most of us, me included, describe reality and hypothesize about causes and effects: what makes people cooperative or why some companies are successful, for example. We find it plenty difficult to convince peers, reviewers and editors of our ideas. Implementation is a whole different realm. We can advise, but usually let others practice: executives, government officials, leaders.

But Dr. Roth is different. Acting as both a scholar and an entrepreneur, he embarked on a difficult and perilous journey to reshape institutions. He had to convince laymen that economic theories are useful. He had to bear the risk of failure for organizational and political reasons. He could have failed even if right. Changing the way students are assigned to schools can disturb powerful education official and supervisors; reallocating kidneys to patients can upset hospitals and doctors.

Somehow, Roth triumphed. In his success, he made markets better and society – more prosperous. He also set a challenge for the rest of us. Coming up with a good idea and convincing your colleagues may be just the beginning of a journey. Putting it to action may be the ultimate goal.

For all of his accomplishments, Al remains friendly, humble and approachable. He seems excited by ideas, not glory. A day after the Nobel committee bestowed his prize, he wrote to me “it’s been a busy day…”. Probably nothing out of the ordinary for him.

Kill Patents, Save Innovation?

The patent system is “a real chaos”. Its faults were laid bare yesterday in an extensive New York Times article, which quickly reached the “most emailed list” (The Patent, Used as a Sword; and see Melissa Schilling’s review). But the same article also hedged by reminding us “patents are vitally important to protecting intellectual property”. But is intellectual property really essential for innovation? For an answer, look just a little past commercial software and you will see vast open collaboration without patents or copyright. Wikipedia, an open initiative, answers many of our questions. Open source software such as Linux and Android power most commercial websites and mobile devices, respectively. In myriad forums, mailing lists and online communities, users contribute reviews, provide solutions, and share tips with others. Science has been progressing by enlisting thousands of volunteers to classify celestial objects and decipher planetary images. Innovation without patents is real. Researchers estimate that open collaboration and user innovation bring more innovation than than the patented kind. Our legal and commercial system can do more to encourage it.

Why Small is Not Always Beautiful

We love small businesses. We love entrepreneurs. Do we love them too much? The Economist thinks that this may be the case, reminding us that our liking may have more to do with ideology (or self-adulation) than with economic reality.

Small is not Beautiful: Why small firms are less wonderful than you think