Explaining Southern California's economy

FAQ: All you need to know about Al Roth and Lloyd Shapley's economics Nobel Prize

Nobel Economics

Reed Saxon/AP

Shortly after being awakened and learning the news, Lloyd Shapley, one of two Americans who were awarded the Nobel economics prize, talks to a reporter from his home in the Pacific Palisades area of Los Angeles. A giant of "game theory," Shapley, retired from UCLA, shared the prices with Al Roth, who's coming to Stanford from Harvard.

Harvard Business School Professor Alvin Roth, now a visiting professor at Stanford University, and UCLA mathematician-economist Lloyd Shapley have been awarded the 2012 Nobel Prize for Economics (which isn't exactly like other Nobel Prizes; being awarded only since 1969).

They didn't really work together but developed complementary insights into something called "game theory" and its real-world applications.  

Q: What is game theory?

A: Game theory is a branch of mathematics that was developed by ultra-super-mega genius John von Neumann. It concerns, in a vulgar nutshell, decision-making in a competitive framework. Ever heard of a "zero-sum game?" That's game theory — two players, one total winner and one total loser, as in a chess match. The math is 1 + -1 = 0, hence a "zero-sum game," with one point up for grabs. The dynamics of this type of reasoning were immediately attractive to Cold War strategists, who had to figure out how to "win" a nuclear war. Shapley, 89, is at UCLA now but based on a statement that the university released, is retired. He spent nearly 30 years at the RAND Corp. in Santa Monica, which was the global epicenter of game theory as a geopolitical discipline. Ever seen the movie "War Games?" It's the most famous example ever of (simplified) game theory in pop culture:


Economist Richard Easterlin, defender of happiness — and possible Nobel Prize winner?



Could an economist from the University of Southern California win the Nobel Prize in Economics? Not last year, but maybe this. Maybe.

The Nobel Prize in Economics will be announced on Monday. Some predictions can be found here — and they include Robert Shiller, who will be well known to readers of the DeBord report for developing, with fellow economist Karl Case, the Case-Shiller home price index, which comes out every month and tracks home prices in 20 U.S. cities. Shiller would be a commendable winner, but...

Last year, I posted on the lead-up to the Economics prize, suggesting that maybe, perhaps, a worthy winner would be Southern California's own Richard Easterlin. Easterlin has since cropped up several more times in this blog (he's always gracious with his time and generous with his insights), and it would be false of me to suggest that, in good hometown fashion, I'm not rooting for the father of happiness economics, still working away at USC, to nab some of that Swedish hardware.


I predict a riot: Economists who studied the L.A. unrest made some troubling discoveries

LA Riots Collages

Mae Ryan/KPCC with archival photo by Gary Leonard

A fire blazes at 165 S. Vermont St. in Koreatown on April 29th, 1992. Did ethnic diversity and high unemployment cause the L.A. riots?

It's the 20th anniversary of the L.A. riots and here at KPCC we've been digging deep into the legacy of those bad days for the city. But it's also the 16th anniversary of just about the only serious economics paper I can find on why the riots might have happened. 

"The Los Angeles Riots and the Economics of Urban Unrest" was published in 1996 by Denise DiPasquale, then at the University of Chicago, and Edward Glaeser at Harvard. As far as I can tell — and I made a number of unsuccessful attempts to contact both authors — DiPasquale now runs an outfit called City Research. Glaeser, meanwhile, has become a pretty well-known economist, particularly for his work on urban economics. 

In 1996, the L.A. riots were fresh in the minds of most Americans, who had watched the chaos unfold in real time on T.V. after the Rodney King verdict was announced. Trying to figure out why the riots might have happened was important, especially because, as DiPasquale and Glaeser note in their paper, the country hadn't endured a large-scale riot since Miami in 1980. But the authors' conclusions were, and still are, controversial.