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November 7, 2012

A Dubious Algorithm and Nobel Prize

Tom McLaughlin

I have always said weather forecasters and economists are the only two professions where individuals can make mistake after mistake without getting fired. The same people continue to be employed as if nothing had happened after a fiasco of a prediction.


I have to take part of it back after Hurricane Sandy hit the East Coast. The forecasters did predict, five days before, the exact path to the millimeter on where and when it would come ashore. The warnings saved many lives despite memories of the botched Hurricane Irene forecast a year earlier.


The same cannot be said of economists. For years now they have been predicting the demise of the euro. The whole monetary system of Europe was supposed to tank with Sandy-like consequences to the world monetary system. Five years later, with the begrudging assistance of Chancellor Angela Merkel of Germany, the euro lumbers along even though most investors sold off long ago and bought Swiss and Swedish currency.


Then there is the case of Greece. That country was supposed to go the way of Homer and his boat, the Calypso, sinking into the sunset, never to rise again. I have always thought that whoever came up with that idea was on an Ouzo bender. Tourists worldwide will always come to Greece for the antiquities. They will convert their dollars, pounds or euros for whatever currency Greece decided to come up with. Probably at the exchange rate of a billion Greek drachmas to one U.S. dollar, the country will return to the cheap oasis it was when I was traveling as a youngster.


Since economists have been so wrong about just about everything, I have always been amused by the Nobel Prize for Economics. This year was no exception.


Two Americans – Lloyd S. Shapley and Alvin E. Roth – won for “Match Theory.” They developed an algorithm (In case you have forgotten that’s a finite list of calculations for finding a function; glad I cleared that up for you.) for combining two items without a price. Their prime claim to fame was putting newly minted doctors with hospitals.


I have a problem with the premise that recently graduated physicians don’t have a price. They start out a couple of billions of dollars in debt, a partner who wants to live the “good life” after eight years of suffering on scholarships and stipends, and an individual who just finished 3-hour days sleeping on tables in hospitals.


The doctor, or his wife, will naturally go to the hospital that pays the most. He will answer an ad in the Doctors Journal of Easy Living and the first question will be: “How much?” A list will be prepared of salaries from highest to lowest and he will work down the list from top to bottom until he lands a job. Of course, he will be careful not to get paid in Greek drachmas.


Another brainstorm from these two is a way to match students with colleges. Now, the young scholars apply to Harvard and Yale just to please their parents knowing they don’t have a chance of getting in. Then they send applications to one they know they will be accepted plus a bottom “if all else fails” school.


The most amusing part of the game is students must be truthful. They can’t say they were the quarterback when they were the towel boy. They will not be able to admit that they were acting president of a bank when they vacuumed the floor. Not being truthful will – the prize winners admit – trash their holy algorithm.


Now these two get into the absurd world of love. The following is a direct quote from The New York Times that tries to explain why they won the prize:


“Mr. Shapley explained how individuals could be paired together in a stable match even when they disagreed about what qualities made the right match. The paper focused on designing an ideal, perfectly stable marriage market: having mates find one another in a fair way, so that no one who is already married would want (and be able) to break off and pair up with someone else who is already married.”


You begin with the premise that the couples will begin to disagree from the very beginning and go from there; and then they will be so happy with each other they will not stray.


They give the word algorithm a bad name, if that is possible.


…Life is good. . . .


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