Why we created UTMD
Game theory has long been used to develop methods for analyzing competing interests among people that are applied to socioeconomic problems. Over time, researchers have used game theory to gain many insights into how people will behave in a given set of circumstances or, in other words, under the rules of a particular game. While game theory is thus maturing as a science that explains reality, a field known as market design, which turns this approach on its head, is now advancing rapidly. Market design is aimed at engineering applications that involve using the theory to implement institutional design in real-world problems. It does this by asking: How can we design systems (i.e., the rules of the game) to achieve the outcomes that people desire? The engineering application of social science theory, something previously only dreamed about, is finally becoming a reality and is now a cutting-edge research theme that attracts researchers the world over. At UTMD, we use this sort of engineering approach in the aim of designing specific, detailed procedures (protocols, algorithms) for arriving at the optimal allocation of people and other resources. Two basic theories have produced particularly remarkable results in this area of research so far: matching theory—in which researchers develop methods for finding the optimal matchings between people or between people and organizations—and auction theory—which seeks to achieve the optimal allocation of valuable resources, such as telecommunications frequency bands or airline takeoff and landing slots. Auction theory deals with situations in which money can be exchanged, while matching theory deals mainly with cases in which money cannot be exchanged because of legal, ethical, or other such issues. UTMD is a new type of center created to make use of these basic theories, to develop and advance them as necessary, to spread awareness of them, and to implement them in the real world.
The notion of having the right person in the right place is central to market design, and creating systems that will hold up in practical applications is essential if the right resources are to be allocated to the right people. In real-world applications, for example, figuring out how to combine people and other resources is a mathematical problem that needs to be solved within a realistic time frame, and knowledge of computer science is essential in accomplishing this. For this reason, UTMD aims for a truly organic fusion of ideas at a high level through interdisciplinary collaboration not only with traditional economics but also with other relevant fields such as computer science.
The results of our market design research aid in the design of institutions to solve a variety of problems around the world. In specific terms, our process is to (1) conduct a detailed study of existing circumstances and practices to (2) identify key points from a theoretical standpoint, (3) develop theoretical solutions to the problems present, and then (4) run computer simulations that guide us in (5) creating a small pilot implementation, with the ultimate aim being to (6) develop a working, full-scale implementation. We also develop software that users can customize to an extent to suit their needs, which we also make available as a Web service.
Building innovative basic theories
At UTMD, we feed the insights gleaned from implementing theory back into theoretical advancements. Specifically, through the implementation process, we seek to understand problems (requests from people in actual workplaces or in the field) that research has not previously illuminated and to develop new theories to solve them. Hence, we fulfill our mission as a research center not only by applying existing theory to the real world but also by developing and advancing the theory itself. The center’s research program focuses on the following four areas (with research on topics not falling into these areas also undertaken as necessary).