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Leonid Hurwicz, Eric Maskin, and Roger Myerson
Win the Nobel Prize in Economics. That's funny, because this is precisely the kind of work which is going out of style in the broader profession. These guys are smart, smart, smart, and Hurwicz is probably the best known of the three. They are all high-powered theorists, doing incentives, mechanism design, and social choice theory. None of them are easy to explain to your grandmother.
Here is the scientific overview.
No doubt mechanism design, and the general problem of inducing truth-telling, will be with us forever. But how practical are these general results? Or have the theorists simply provided us with cautionary notes and left the real applications to the context-specific world of practice? Did these guys get at the real reasons why we don't organize the entire economy as a second-price auction?
Part of me thinks: "Hey, let's say Natasha wants Yana to tell her the truth about when she will clean her room. This stuff isn't useful!"
Another part of me thinks: "It is most important to get theory right. These guys are brilliant. Only the philistines demand that all scientific contributions have immediate applications."
Some of you might argue: "These guys have already had a big impact on real world auctions and incentive schemes." In terms of the induced improvement in human welfare, I find that a difficult case to make. The important progress has come from recognizing much simpler truths about incentives.
Posted by Tyler Cowen on October 15, 2007 at 10:07 AM in Economics | Permalink
Comments
So what's in-style these days then?
Posted by: fred at Oct 15, 2007 7:25:47 AM
Mechanism design is very much in style, Tyler. I'm not smart enough to understand it, either, but the insights of these guys have been used extensively in more applied setting, e.g. auction design, so you should be a little nicer.
Posted by: brutto at Oct 15, 2007 7:38:57 AM
Well.. Out of style probably in the sense that economists tend to turn away from purely theoretical work. Some mechanisms truly make little sense outside theory.. To make Nash equilibria hold, theorists sometimes appeal to things like integer games (two players have to say a number, the highest wins - obviously no Nash equilibrium in here). Many in this literature, though, are aware of this and try to avoid such games.
But those guys are indeed diabolically clever. And mechanism design is still a beautiful field, with, I believe, a long and flourishing future ahead.
Posted by: Tim at Oct 15, 2007 7:48:06 AM
I guess that Tyler would say that clever empirical work directed at social topics (poverty, education, sex, status, etc.) is in style.
But I think that some very hot work is being done with mechanism design at the intersection of economics and computer science.
Posted by: Mike-KP at Oct 15, 2007 8:45:39 AM
Will a woman ever win the Nobel Prize in Economics?
Posted by: Steve Sailer at Oct 15, 2007 9:24:18 AM
Will a libertarian ever win the nobel peace prize?
Posted by: Erik at Oct 15, 2007 9:27:23 AM
I wouldn't say that this topic is out of style. Just recently, the Harvard Business Review (in the October 2007 issue, article "The Art of Designing Markets") discussed "a new field of economics" - market design, formed thanks to the developments in game theory and experimental economics. The applications mentioned were organization of radio spectrum auctions and efficient matching in markets in general - in particular kidney exchange (paired kidney donation), medical labor markets, deferred-acceptance algorithm to match students with schools - I think that pretty much could be classified as the "clever empirical work directed at social topics."
Posted by: Matt P. Dz. at Oct 15, 2007 9:33:58 AM
Would it be crass of me to point out that I was the *only* person talking about Eric Maskin and the Nobel prize in the same sentence? :)
Posted by: Mike Moffatt at Oct 15, 2007 9:49:41 AM
Well said, Tyler.
Posted by: John H. at Oct 15, 2007 9:50:34 AM
"Would it be crass of me to point out that I was the *only* person talking about Eric Maskin and the Nobel prize in the same sentence? :)"
I got Hurwicz right.. :-)
Posted by: Michael Greinecker at Oct 15, 2007 10:12:36 AM
"These guys have already had a big impact on real world auctions and incentive schemes. In terms of the induced improvement in human welfare, I find that a difficult case to make."
I find that a remarkable statement. It is extremely difficult to point to any field of economics which has obviously made any positive contribution at all to human welfare. (And it is not so difficult to point to a few which have probably had large, negative impacts). Mechanism design is one of economic's rare success stories. It may only be a more efficient allocation of the airwaves, and huge windfalls for government coffers, but that simply demonstrates how difficult it has been for economics to make significant practical contributions in wider fields. Beggars shouldn't be so choosey...
Posted by: Justin at Oct 15, 2007 10:34:01 AM
Really? The end of mercantilist/zero-sum government economic policy was not positive? The massive decreases in economic volatility? The credit market changes which have allowed huge swaths of humanity to own their own businesses?
I would take, in nearly any year, the contributions the Econ winner over any of the other Nobels - peace prizes tend to be important, but ephemeral, while economic contributions are more lasting. The scientific prizes, and particularly medicine, are closer, but even there you have many prizes that are more for our understanding of how the world works (certainly a nobel human goal, sic intended) than for something practical.
Posted by: cure at Oct 15, 2007 10:47:39 AM
Perhaps Tyler is so snarky because in many many respects this is the anti-Austrian prize.
Posted by: Chris at Oct 15, 2007 10:52:37 AM
I question whether any of the winners have had direct effects on practical applications of auction theory. After all, Myerson formalized material originally developed by Vickrey and others. It's not clear that ANY of the gains in the real world depended at all on the high theory. Most of the math was unnecessary for the arguments themselves [on a related note, see Tyler's discussion of Freitas' caste model being unnecessary for her arguments.] Can someone point me to anything in the spectrum auction that would not have been possible if the core theorems had never been proven and had remained mere informal intuitions based on pre-existing work in auction theory?
It's interesting high theory and quite influential in the profession. But giving economics Nobels to this sort of work would be like giving Physics prizes for obscure theorems in group theory or topology.
Posted by: core at Oct 15, 2007 10:55:34 AM
"Will a libertarian ever win the nobel peace prize?"
Vernon Smith, Friedrich Hayek and Milton Friedman all won Nobels. Douglass North and Robert Lucas are pretty pro-market/anti-intervention, even if not outright libertarians.
Posted by: AMW at Oct 15, 2007 10:57:46 AM
Hurwicz is very much a Hayekian, a mathematically sophisticated Hayekian to be sure but his themes of incentive-comptability, information etc. are explicitly Hayekian. Thus, not an anti-Austrian prize at all.
Posted by: Alex Tabarrok at Oct 15, 2007 10:59:57 AM
Alex,
The "themes of incentive-comptability, information etc" are not the exclusive province of Hayekians. How do you think Maskin and Myerson's work (I have to admit to knowing it better than Hurwicz's) fits into the socialist calculation debate? Not on the Austrian side, I'd submit. A standard interpretation would be that these are tools for alleviating Hayek's concerns about the information content of prices. There is a reason why it's called mechanism *design* and not mechanism *spontaneous order*.
Posted by: Chris at Oct 15, 2007 11:07:23 AM
The point isn't, will a libertarian win the Nobel in Economics; that's not unlikely. However, Ayn Rand winning the Nobel Peace! Prize is unlikely in her lifetime, or the next ten.
Posted by: Jeff at Oct 15, 2007 11:09:33 AM
They asked Hayekian questions and got not-so-Hayekian answers.
Posted by: Michael Greinecker at Oct 15, 2007 11:10:45 AM
There is no doubt that the development of the "high" theory was essential for the subsequent development of auction designs that have been highly successful. If you don't believe me, take it from a famous auction designer: http://news.independent.co.uk/business/analysis_and_features/article277208.ece .
I stand by my point, the "end of mercantilist/zero-sum government economic policy" notwithstanding!
Posted by: Justin at Oct 15, 2007 11:11:44 AM
I am a bit surprised. I was strongly expecting a prize in an applied micro area: either international, IO or public finance. People like Bhagwati, Tirole etc. Hadn't expected a pure theory so soon after the game theory prize a couple of years ago.
As for mechanism design I haven't studied it in detail but it does seem to be one of those areas where the broad ideas seem interesting and relevant but most of the energy is spent on mathematical minutiae which tell us more about the models rather than the real world. Unfortunately a lot of economic theory is like this: the basic principles are useful but the marginal utility drops sharply as the sophistication increases.
Posted by: Dissector at Oct 15, 2007 11:15:47 AM
Michael,
Exactly.
Posted by: Chris Edmond at Oct 15, 2007 11:16:59 AM
I am surprised by Alex's comment. No doubt Hurwicz sees himself as the heir of Hayek, but a) the social problem is treated as fully about articulable information, b) it ignores the elements of Hayek brought out by Buchanan, c) it is indeed about "design," d) social order is seen as stemming from single nodes, unlike as in Hayek and Polanyi, and e) it is not obvious that the incentives of the designer are properly factored in; see for instance Hayek's *The Road to Serfdom*. To be sure, economists are used as consultants in auctions. But on auctions I stand by my words: "In terms of the induced improvement in human welfare, I find that a difficult case to make. The important progress has come from recognizing much simpler truths about incentives." Just how much better do you think Sotheby's is run these days? Most of all, auctions are about marketing, not the static revelation of preferences.
Posted by: Tyler Cowen at Oct 15, 2007 11:24:53 AM
Justin,
Why should I accept Binmore's characterization? He is also a high theorist. I'm not doubting the value of auction theory in general. I'm doubting the value of most of the formal exercises that count as "results" in this literature. The applied auction work did not require ANY of the formal theorems that were proven to be true. If some of the core theorems were found to be reversed tomorrow (say, because of an error in the original math) none of the applied work need change.
It's like high-end game theory. Most of the useful applied stuff keys off the Prisoner's Dilemma or the War of the Sexes or similar simple games. Multiply layered solutions, complicated stability conditions, or complex appeals to subgame perfection remind me more of medieval disquisitions on angels and pinheads than scientific contributions.
Question: Why do none of the top applied empirical economists' research agendas rely on the results from high theory?
Levitt -- who is doing research on pricing -- admitted in his blog that he's completely unfamiliar with Hurwicz's work. As an economist, even I was taken aback by that revelation.
Posted by: core at Oct 15, 2007 11:35:08 AM
"They asked Hayekian questions and got not-so-Hayekian answers."
That's a fair reading but I would say it's an odd and ahistorical reading. If we compare Hayek with his opponents in the socialist calculation debate the mechanism design literature has Hayek winning hands-down and his opponents looking very naive. Thus on the first page of the explanation for the award the prize committee says:
"These results support Friedrich Hayek's (1945) argument that markets efficiently aggregate relevant private information."
Of course there are also results from mechanism design showing where markets break down. But what sets mechanism design apart from say the standard public finance literature is the attempt to create "market-like" institutions to solve some of these break downs.
Thus, I would say that mechanism design uses a deeper understanding and appreciation of how markets work to create market-like institutions to improve on markets, in the cases where standard markets do not work well.
Posted by: Alex Tabarrok at Oct 15, 2007 11:42:44 AM
Core
It's hard to know how to respond to that - it's simply untrue about both auctions and game theory. All of the successful telecoms auctions have been designed by what you would term "high theorists". There's a reason for that.... Read Klemperer, Milgrom, Binmore. As the telecoms auction problems become more complex (e.g. combinatorial), the need for "high" theory becomes even more acute.
As for Tyler's comment that "most of all, auctions are about marketing, not the static revelation of preferences," I'm frankly speechless.
Posted by: Justin at Oct 15, 2007 11:48:07 AM
AMW: Yes, but they did not get nobel peace prizes, did they? :)
Posted by: Erik at Oct 15, 2007 11:51:50 AM
Hurwicz's work is so interesting largely because he was a student of both Hayek and Lange, and you can find both of those influences in his work. He has written this explicitly in a couple places (one a response to an article on Hayek by Kirzner in the Cato journal). So saying he's Austrian/Hayekian or anti-Austrian/Hayekian is missing the point.
Posted by: Joe at Oct 15, 2007 11:52:11 AM
Just in general, a huge note of thanks for your and Alex's going to the effort of compiling all these references for the rest of us. Unfortunately, I now have just that much more to read--or at least to skim.
Posted by: Donald A. Coffin at Oct 15, 2007 12:01:28 PM
Just in general, a huge note of thanks for your and Alex's going to the effort of compiling all these references for the rest of us. Unfortunately, I now have just that much more to read--or at least to skim.
Posted by: Donald A. Coffin at Oct 15, 2007 12:01:38 PM
I hate to ask, but was this selection even slightly politically motivated? I see that the byline on their New York Times profile is "designing institutions were markets fail", a little bit telling to me. And InTrade didn't seem to give them that high a possibility of winning. I am but a lowly college student, however, who doesn't have authority or knowledge to judge the import of their works...
Posted by: Riemannian at Oct 15, 2007 12:20:22 PM
Sometimes you just have to cut your losses.
Posted by: wood turtle at Oct 15, 2007 12:33:08 PM
It is surprising to have another award so close to game theory again so quickly. Roger Myerson is definitely a game theorist, even doing some cooperative game theory, which keeps seeming to be on the verge of coming back into style. I assume he's involved in organizing the next Game Theory Society world congress next summer at Northwestern where he used to be. Eric Maskin's definitely active in that society as well.
Nice to see real game theory isn't going away any time soon.
Posted by: mark b at Oct 15, 2007 12:47:56 PM
Politically motivated?! Perish the though! The NY Times would never do anything like that, right?
Posted by: WSmith at Oct 15, 2007 12:56:40 PM
Politically motivated?! Perish the though! The NY Times would never do anything like that, right?
Posted by: WSmith at Oct 15, 2007 12:56:53 PM
Core - Why should you be surprised that Levitt's never heard of him? Levitt's not a theorist. To say that Levitt has done stuff on pricing, too, is a bit of a stretch. The fields are becoming increasingly specialized and insulated. Within applied IO, these are all well-known men. But for someone working within the area of policy analysis, crime, and instrumental variable oriented empirical papers, why would Levitt have gone searching for these men? Levitt's not a game theorist, nor does his work even have very simple mathematical models. Levitt, like many applied economists nowadays, relies more on prose to express the models, so it's not at all unusual. I'm an applied health economist, and I was unfamiliar with Ed Phelps, so sue me. I spend all my time just to keep up with my growing literature.
Posted by: jason voorhees at Oct 15, 2007 1:18:40 PM
I think we're just starting to realize the benefits of mechanism design theory. The benefits will become especially large when we have greater broadband penetration, so entire communities can participate in these mechanisms over the internet.
Here's the next frontier: Take a community, maybe a community such as Glasgow, Kentucky, with a community-wide intranet. Implement Smith auctions over the intranet in that community to decide on local public goods, and see what you get. In the case where the community has to throw money away to obtain truthful revelation, well, then they simply give those funds to a sister city, and that sister city implements Smith auctions and gives excess funds to that city.
Posted by: Keith at Oct 15, 2007 1:19:26 PM
Riemannian - I'm not surprised inTrade had such a hard time predicting these. There's no information to be aggregated, and the markets were very thin, so why should prediction markets have a very good job of predicting? The Nobel process is very secretive for the sciences (probably not so much for the Peace prize). As for it being politically motivated, I doubt it. These are deserving men. The idea of market failure is nothing new. And didn't I read that the mechanism design literature shows the convergence of certain auctions to the competive price outcome if parties are informed of their own private valuation of the good? That's a comforting result (if I'm reading that right, which I probably am not).
Posted by: jason voorhees at Oct 15, 2007 1:22:22 PM
As for the political motivation -- I don't see much reason to suspect it. Rather, I think that the NYT article was a bit lopsided in its discussion.
Rather than mechanism design being mostly about market failure, which is the implication in the NYT, I think it more in the way of a generalization and abstraction about economic institutions of which traditional markets for private goods with well defined property rights are one example. Mechanism design allows for some more generalized/abstract institutional thinking.
Posted by: Mike Giberson at Oct 15, 2007 2:09:26 PM
Jason: InTrade didn't even list any of the three candidates who won. But, "rest of field" did have the highest final trading price. The other downside with InTrade is their expiration fee: you pay a 5% fee to InTrade on contract expiration. For a market with lots of low probability outcomes, that kills it. I bought a few shares of Tullock at 5 cents on the dollar. Whoever sold that to me made zero money: the contract expires at zero, but InTrade charges the 5 cent fee to whomever sold me the contract. Total volume was pitiful: about 50 contracts traded; I bought about a dozen or so. My earnings on my one "Rest of field" contract meant I was up $3.50 on net. Woo-hoo.
Posted by: Eric Crampton at Oct 15, 2007 2:09:49 PM
Mathematical mania rules the committee selecting Nobel laureates.What's the use of these designs in a developing country? I doubt.Also, we are fed up with game theory.It seems that pure economists are ignored (Profs.Baumol,Bhagvati,Krugman and others)and mathematicians dealing with narrow theory are instead selected.
Posted by: GVV at Oct 15, 2007 2:24:00 PM
After reading many of these comments, I feel as if I should mention that no matter what else one might argue, Leo is a nice fellow. Today he smiled and commented that many others deserved this honor, but he just happened to have outlived them. I have looked forward to this day for him for many years now. He has applied these "high" theories every day of his life to his everyday life. Whether they have shaken financial institutions or governments doesn't mean as much to me as how much they have meant while growing up in his household. Just the other day we were discussing moral hazards as they applied to using the mileage deduction on federal income taxes and how that might influence a person to do this or that to justify a business expense. Pretty applicable to everyday stuff, no?
I don't pretend to understand the bizarre formulas he creates that require fonts from outer space, but all in all, if for no other reason, perhaps he deserves this honor because of all the people, great and small, who he has helped to understand this stuff a bit better.
Posted by: Maxim at Oct 15, 2007 2:29:45 PM
Milton Friedman - beloved, no doubt to many readers of this blog - dabbled in auction design in the early 1990's when he advised the government to switch to a uniform-price auction for treasury bills. (Friedman, Milton, 1991. "How to Sell Government Securities", Wall Street Journal, August 28). Merton Miller (winner of the 1990 Nobel Prize in economics) also argued in 1992 in favor of experimenting with the uniform-price auction. Both of these eminent economists ended up with egg on their faces, however, for not understanding the crucial distinction between a Vickrey auction for a single object, and Vickrey auctions when multiple objects are for sale, even though Vickrey himself was very clear on this. (Vickrey, William, 1961. “Counterspeculation, Auctions, and Competitive Sealed Tenders,” Journal of Finance, 16, 8-37).
This may be a simple case of sending in a boy to do a man's .... but I suspect that Friedman, like some of the commentators above, was too impatient with difficult and carefully worked out mathematical theory (a la Vickrey, and today's new Noble Laureates), and thought he could extend a simple insight from one type of auction to another, where it did not belong.
For a little more on Milton Friedman's famous blunder see: http://www.cramton.umd.edu/papers1995-1999/98wp-demand-reduction.pdf. Didn't someone above say, "the applied auction work did not require ANY of the formal theorems that were proven to be true"? If only Friedman had paid closer attention to a few more theorems he could have saved himself the embarrassment..
Posted by: eric at Oct 15, 2007 2:38:11 PM
Vulgur capitalist good for nothing economics(?) received Nobel.
Will a Marxist get the prize ever?
Posted by: Question raiser at Oct 15, 2007 2:38:41 PM
"Will a Marxist get the prize ever?"
Not now that Groucho is dead.
Posted by: Maxim at Oct 15, 2007 2:46:42 PM
Eric, wasn't there also another mighty famous bigshot economist who advised either Australia or New Zealand on spectrum auctions, and ended up forgetting to set a reserve price on second-price auctions? Consequently, a lot of people walked away with spectrum at bargain-basement prices.
Ironically, this likely maximized social welfare.
Posted by: Keith at Oct 15, 2007 3:16:46 PM
"Will a Marxist get the prize ever?"
Will Strasbourg ever replace their weeklong celebration of Mozart with a tribute to Brittany Spears?
Posted by: Keith at Oct 15, 2007 3:19:20 PM
"Did these guys get at the real reasons why we don't organize the entire economy as a second-price auction?"
I do not understand this question. Auctions can be used by a monopolist or by oligopolists that form a cartel. But some markets are competitive and so the sellers can not use them because the price is given to them.
ps: first time commenting here. Great blog!
Posted by: carlo at Oct 15, 2007 3:25:12 PM
Keith: The way my contract theory professor told the story, it was a team of McKinsey consultants advising the New Zealand government. According to page 9 of Milgrom's book Putting Auction Theory to Work, it was actually the consulting firm NERA.
Posted by: Guan Yang at Oct 15, 2007 4:09:04 PM
I can understand both sides of this arguement, however Tyler's point that this type of economics is "going out of style," is not the correct point. What is "in style" vs. "out of style" is not important; what is important is if a subfield is moving us towards a better understanding of actual economic, political, and social phenomena, and if it can help us improve welfare through application of its principles.
After this rephrasing we can have the debate about the importance of mechanism design theory. It is beyond doubt that the field (especially the following schools (of which I am familiar): Stanford, Princeton, UPenn, Northwestern, Caltech, Yale) place much value on the the highest brow theory. However, one can make the case that the ultimate utility of theory should be in its applicability to modeling (and hence understanding) real world situations and informing policy, and that the theory recognized today may not be the most valuable in that sense.
Which brings me to my final point. Look at the discussion above and listen to Eric Maskin's interview on nobelprize.org. There is a common thread that the most useful and influencial example of mechanism design theory was the spectrum auctions in the 90's. And who were the architects of it? Robert Wilson and Paul Milgrom. Perhaps we can all agree at least that they deserve a Nobel.
Posted by: AJC at Oct 15, 2007 4:30:13 PM
If the spectrum auction is an example of their great triumph it is an odd triumph indeed.
After all, isn't that also the auction where these theorists were supposed to have designed an anonymous and collusion proof mechanism that was circumvented in the end by large bidders who chose odd ending values (I remember a number like 18.18 million) to signal who they were? NO formal theorems were helpful for that. They were not less prone to error than Friedman because their work was more formal.
At the end of the day, it was about cleverness and who could outthink the big companies. No surprise, you put smart guys on the job and it helps a lot. But it wasn't their findings. There is still no evidence that without the formal theorems such an auction would not have been possible. There is indeed no evidence that one needs theorems to work out intricate examples of incentive compatible mechanisms, just as you don't need Zermelo's theorem to develop a chess machine.
This is the same kind of puffery that followed Debreu's prize, when people argued that GE theory now "proved" Adam Smith.
That is not to take away from the profundity of their work as math theorists. But I continue to disagree on the so-called applications.
Posted by: core at Oct 15, 2007 5:34:54 PM
One curious point is that Hurwicz got his Ph.D. at LSE in the late 1930s. That means he probably intersected
with Hayek about the time that the latter was shifting to his economics of information interests. I would
say that Hurwicz's results are clearly influenced by Hayek, but are not definitely Hayekian, the Committee's
remarks notwithstanding.
Regarding the actual design of the spectrum auctions, there has been a lot of criticism of how Milgrom and
Roberts did it. Vernon Smith has been among those criticizing it. In any case, mechanism design is clearly
the more general theoretical approach to auction design, whether or not one thinks that what these particular
theoreticians have done has had any specifically practical application in auction design (in contrast to
Vickrey, whose seond-price theory has clearly been enormously influential and practical).
Posted by: Barkley Rosser at Oct 15, 2007 6:10:30 PM
Oh yes, and btw to those of you wondering about why another prize to game theory so soon?
Just think of the influence of Juergen Weibull on the committee. I would submit that is the
answer to that question.
Posted by: Barkley Rosser at Oct 15, 2007 6:11:46 PM
And yet another curious point. How many of you caught that
both Maskin and Myerson both received Ph.D.'s in Applied Math
from Harvard in 1976? I suppose this is not the first time
a Nobel has been given to two people who received the same
degree the same year from the same department/school, but I
bet it has not happened very often in any field, if ever.
Posted by: Barkley Rosser at Oct 15, 2007 6:32:58 PM
"Oh yes, and btw to those of you wondering about why another prize to game theory so soon? Just think of the influence of Juergen [should be Jörgen] Weibull on the committee. I would submit that is the answer to that question."
I agree that it seems likely that Weibull has pushed in that direction. But I would guess that, for any given field, there was also a strong desire (maybe in particular on the part of Weibull) to award the pioneering guy, who in this case was Hurwicz, and then the prize to mechanism design couldn't wait.
Posted by: Rufus at Oct 15, 2007 8:09:53 PM
why isn't there a crimes against economics award? Robert Mugabe could be the first recipient.
Posted by: adam at Oct 15, 2007 11:10:36 PM
Tyler says, "Most of all, auctions are about marketing, not the static revelation of preferences."
On this note, read the story of Hurwicz' son and his effort to sell his father's house:
http://www.forsalebyowner.com/press/press.php?iPressID=118
Posted by: PrestoPundit at Oct 16, 2007 1:28:18 AM
Tyler says, "Most of all, auctions are about marketing, not the static revelation of preferences."
On this note, read the story of Hurwicz' son and his effort to sell his father's house:
http://www.forsalebyowner.com/press/press.php?iPressID=118
Posted by: PrestoPundit at Oct 16, 2007 1:28:30 AM
Hurwicz studied with both Hayek and Mises. See his remarks here:
http://www.cato.org/pubs/journal/cj4n2/cj4n2-4.pdf
Posted by: PrestoPundit at Oct 16, 2007 1:31:51 AM
Will a libertarian ever win the nobel peace prize?
Since libertarianism is code for "I made my pile all by myself, I deserve it and don't you dare take away a jot of it for any cause however deserving", probably not. They tend to give it for helping others. But don't worry guys the Nobel prize for ingenious selfishness is awarded by a Bank so libertarians should get a pretty fair swag!
Posted by: Paul Mason at Oct 16, 2007 2:22:44 AM
...libertarianism is code for "I made my pile all by myself, I deserve it and don't you dare take away a jot of it for any cause however deserving"...
No, its not. If people actually stopped beating up straw men all day long, it may not take so many decades for advances in political "science" and economics to occur. Of course if that happened interventionists would have to admit that either their arguments are based on absurd premises, or they simply want to wield power over others. So I'm not holding my breath.
Posted by: G at Oct 16, 2007 3:09:25 AM
"would have to admit that either their arguments are based on absurd premises, or they simply want to wield power over others."
Talk about 'beating up straw men', pff...
Posted by: JSK at Oct 16, 2007 6:33:09 AM
I am surprised by Tyler's comment "The important progress has come from recognizing much simpler truths about incentives." How would Tyler propose that "simple" principles be used to design auctions for the spectrum, which can be sliced up in a thousand different ways? Maybe he should tell the FCC that they wasted their money hiring mechanism design (auction) theorists. What is the obvious method for auctioning spots on Google? Does Tyler have an intuitive, efficient and strategy-proof mechanism for housing or school matching? If so, I am sure that Parag Pathak, the brilliant young Harvard graduate student who is now at the Society of Fellows for his pioneering work in this "out of style" field, would love to hear about it. Does Tyler have a more elegant solution than Maskin and Riley to the price discrimination problem? If so, I think he should talk to some of the companies that Maskin and Robert Wilson have consulted for.
Posted by: Maskinadmirer at Oct 16, 2007 12:36:32 PM
"Oh yes, and btw to those of you wondering about why another prize to game theory so soon? Just think of the influence of Juergen Weibull on the committee."
Well game theory is getting many Nobel prizes recently because it is so successful I guess! Can you imagine modern economics without it?
I wrote a couple of things as an answer to this post and some comments, I am linking it here as a manual trackback mechanism since it seems there is no automatic one.
Hope this will not be taken as shameless spamming...
Posted by: S G at Oct 16, 2007 2:06:39 PM
Actually, as the one who made that remark, the more I think about it the more I think that the
real bottom line was Hurwicz's age. I have no doubt that the key player was Weibull, as I have
already argued. But it seems in recent years that the committee has been worrying about picking
up on senior, "underappreciated" giants. This year it looks like the top three were the more
publicized Gordon Tullock and William Baumol, both of whom did pretty well on the intrade betting
market. But, Hurwicz just happens to be older than them, at 90 the oldest Nobel recipient ever.
So, that is why "the next game theory award" got jumped ahead, undoubtedly pushed by Weibull.
Posted by: Barkley Rosser at Oct 16, 2007 2:10:40 PM
The definitive critique of the Milgrom-Roberts FCC spectrum auctions in the US can be found in
Jeffrey Banks, Martin Olson, David Porter, Stephen Rassenti, and Vernon Smith, "Theory, Experiment,
and the Federal Communications Commission Spectrum Auctions," Journal of Economic Behavior and Organization,
2003, Vol. 51, Issue 3, pp. 303-350. They argue for an English clock auction as a far superior alternative.
Posted by: Barkley Rosser at Oct 16, 2007 2:24:08 PM
um, sorry about the previous comment, it seems appropriate that I write a short summary of my points here:
I think mechanism design is indeed quite abstract and I think many theoretical papers in MD are not directly "doing much for the world in general". The field also seems to be going out of style, at least it seems there is not much left to be done. But these things are true at the purely theoretical level.
When it comes to applications, then the field is wide open and most work has not even started yet. Mechanism design can be useful in many other fields of economics, from health to development. What is needed however is a person with enough understanding of the abstract theory and enough knowledge/interest for the real world to bring it to innovative solutions in old problems like corruption etc
Until now it seems pure mechanism designers find simple applications boring and other people (like macroeconomists) significantly underestimate the power and complexity of MD (Milton Friedman being a prominent but not only example).
Posted by: S G at Oct 16, 2007 2:27:32 PM
Re 'straw men'
How many poor, old (i.e. don't have a pile and don't have time to make one) libertarians do you know?
Life in a libertarian world is a free for all race in which all are compelled to take part. Handicaps : genes, parenting, education even culture, are arbitrary and significant. The only people who don't acknowledge them are those who, relatively, don't have them. They don't even recognise that their success depends on their using their less fortunate fellows. Call such a world efficient, prosperous, more interesting but please not virtuous!
As for 'their arguments are based on absurd premises' please enumerate and demonstrate.
Posted by: Paul Mason at Oct 17, 2007 1:46:29 AM
Hurwicz has done important work that is DEFINITELY Hayekian. Namely, he showed that when transmitting economic agents' private information is costly, and so the "socialist" mechanism (also known as direct revelation mechanism) in which all information is reported to the Center is impossible, the simplest way of implementing an efficient outcome is using a market price equilibrium, in which only prices are revealed and agents respond to prices by maximizing their private preferences. This work, which does not even look at incentives, and is rather related to the subsequently developed computer science theory of "communication complexity," is unfortunately not well known now. I have done recent research that generalizes this insight to a large class of allocation problems, including many practical "market design" problems in which the classical Walrasian equilibrium is inapplicable. This approach explains why even in such problems, the only practical way to proceed is by finding discovering the right supporting "price equilibrium," as opposed to a "socialist" mechanism in which all preferences are reported to the center.
Posted by: Ilya Segal at Oct 17, 2007 6:14:43 PM
Rosser-
Hurwicz never got a PhD (you mentioned LSE). In fact, his highest degree is a Masters degree in Law from Poland. He is not only the oldest person to win a Nobel but also the only economist to win a Nobel without a PhD!
He is mathematically very sophisticated and he taught it all to himself as needed by his research.I took his micro class at Minnesota- in spite of his towering achievements, the guy is very humble and is very good at conveying the basic ideas of his incredibly complicated work is a very intuitive fashion.
Posted by: Raghu at Oct 30, 2007 3:15:54 PM
My guess is that the main real world benefits from mechanism design so far are found in the related improvements in the quality of procurement (esp. gov't procurement in tricky markets like defense) and the quality of regulation of privately operated infrastructure companies.
Posted by: April at Oct 31, 2007 10:10:02 AM
So what's in-style these days then
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