How to cut a pie, Nobel style

With all the fuss about Al Gore and the Nobel Peace Prize, you may have missed the Nobel Prize for Economics.

Never fear, Comment Central is here.

The winners were Leonid Hurwicz, Eric Maskin, and Roger Myerson. And the work for which they are being recognised is known as Mechanism Design.

Here's a simple explanation from Reason online:

Two children are squabbling over how to divide a pie. We need a method to divide the pie fairly. Parents will already know one answer—one child cuts and the second child chooses. The second child will choose the larger half which gives the first child the incentive to cut as evenly as possible. The first-cut, second-choose solution is a simple example of an incentive-compatible mechanism. Leonid Hurwicz, Eric Maskin, and Roger Myerson received the Nobel prize in economics for their study of incentive-compatible mechanisms or, more informally, "mechanism design."

Marginal Revolution contains biographies and background information on the three laureates (here, here and here) and provides a case study.

Comments

[Tim Worstall]

I have a feeling that their studies of auction design systems were used in the 3G spectrum auction here too.

[Tom Freeman]

All well and good, but what if you have three children?

Now that would be worth a Nobel Prize. Or at least an impressed nod.