The following editorial appeared Tuesday in the Chicago Tribune.

Economics patriarch Adam Smith concluded in the 1700s that transactions – say, manufacturers selling widgets to their customers – are efficient dealings when market conditions are perfect: Everyone has access to the same information, each party acts transparently in his or her own best interest and those individual decisions don’t create burdensome costs for the greater society. Smith argued that when people maximize their own self-interest, their community profits. It was, he said, as if everyone involved was guided by an “invisible hand.” Put short: Everybody wins.

But market conditions in the real world are often imperfect. What happens next falls within the realm of something called mechanism design theory. We don’t pretend to be experts. We are, though, proud to live in the same metropolis as someone who does: University of Chicago professor Roger B. Myerson, one of three co-winners of this year’s Nobel Prize in economics.

Myerson, the University of Minnesota’s Leonid Hurwicz and Eric S. Maskin, of Princeton, N.J., have studied how to determine when alternatives to simple transactions – one example: auctions with one seller and many bidders – are necessary. The co-winners have developed, and nurtured, a theory on how buyers and sellers can maximize their gains in such transactions.

The theory has broad applications in the real world. It helps to answer, for example, questions of how to devise health insurance policies that will provide the best coverage without providing incentives for misuse. Or how best to fund projects that benefit the public good by providing, for example, uncongested roads.

Yes, mechanism design theory does need a sexier name. But it builds neatly on game theory, which involves strategizing. Still with us? Then you’ll recall that game theory earned John Forbes Nash the Nobel in economics in 1994 – a saga popularized in the movie “A Beautiful Mind.”

Mechanism design theory “provides a tool” for helping governments, companies and other institutions analyze the merits of alternatives to determine which will provide the best outcome, said the Nobel committee.

The collective work of Myerson, Hurwicz and Maskin provides a road map, regardless of whether the goal is higher profits in the private sector or improved social welfare and more efficient, cost-effective regulation in the public sector.

Myerson put it more simply Monday. It’s important, he said, “for society to understand the economy better.” That’s essential as America wrestles with such momentous topics as reforming health care and sustaining entitlement programs such as Social Security and Medicare.

Professor Myerson, congratulations.