My former professor at UCLA Lloyd S. Shapley gets Nobel Prize? Seriously?

Shapley is known for the so-called "Shapley Value."  I had Lloyd for cooperative game theory classes at UCLA, and while I am sure that it wasn't his intention, he completely convinced me that cooperative game theory was completely worthless.  We spent the classes showing whether different division rules would satisfy a set of axioms.  We would show one rule would satisfy axioms 1,2,5, and 6 and another would satisfy some other set of axioms.  I had asked him a couple of times after class what we were going to end up doing with this large collection of division rules that we had acquired, and Lloyd told me to be patient.  Finally, I push and asked him how one picks which division rule one should use, and Lloyd told me that it simply depended upon which result one wanted to get.  It was a bizarre answer, and it hardly fit in with what I viewed as the role of a science.  There were no testable implications.

I like former professors of mine getting Nobel prizes, but the Shapley value is an incredibly lame idea to give a Nobel prize for.  If you want to give UCLA professors a Nobel prize, try Armen Alchian and Harold Demsetz, whose 1972 AER paper is the most cited paper by authors who have yet to get the prize.



Blogger Michael Powers said...

Hi John!

I have to disagree with your assessment of Shapley's work. The Aumann-Shapley value (which extends the ordinary Shapley value) is used by actuaries in a very practical context: the internal allocation of capital to different lines of business within an insurance firm when frictional financing costs are present. I'd draw you attention to Powers (2007) at (admittedly not [yet] as well cited as Alchian and Demsetz, 1972).

All the best from Beijing!


10/15/2012 3:19 PM  
Blogger John Lott said...

Thanks, Mike! I have to confess that I didn't follow Lloyd's work after the classes that I took from him. All I can say is that at that time what he described as the uses for the value were very limited. I am glad that you have had work that has been built on it.

The actuarial importance of his work is something that should be taken into account. The Alchian and Demsetz work served as the basis for much of the work on the theory of the firm.

Thanks again.

10/16/2012 2:52 AM  

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