The Nobel Prize in Economics

The Nobel Prize in Economics goes to Leonid Hurwicz, Eric Maskin, and Roger Myerson. Busy for a bit with things I cannot set aside - so let me go with links to others:

• Nobel Press Release
• Eric Maskin, Marginal Revolution
• Roger Myerson, Marginal Revolution
• Leonid Hurwicz, Marginal Revolution
• Mechanism Design for Grandma, Marginal Revolution
• Leonid Hurwicz, Eric Maskin, and Roger Myerson, Marginal Revolution
• Nobel Prize in Abstraction, Arnold Kling
• Readings on Mechanism Design, Yet Another Sheep
• 3 Americans to Share Nobel Prize, NY Times
• 3 Americans Win Nobel Economics Prize, Washington Post
• Three Americans won, WSJ
• US economists win Nobel prize, Financial Times
• Nobel Economics Prize Goes to Hurwicz, Maskin, Myerson for Design Theory, Bloomberg

I will add more links if I come across particularly good summaries of their work, and please add links/information in comments as well. Update:

• Political science and economics, Crooked Timber (analysis of mechanism design)
• Eric Maskin wins Nobel Prize - Jim Bessen (coauthor)
• Nobel Theory Offers Insights Into Turmoil, Fed’s Lacker Says

Comments

[anne]

When I learned of the Nobel Prize, I noticed that "Freakonomics" was supposed to be discussing the economics and much as I find "Freakonomics" of no value I turned to the blog only to find Doris Lessing gratuitously insulted in place of an economics discussion.

[Laurent GUERBY]

Eric Maskin has been a vocal critic of software patents:

http://www.ckgsb.edu.cn/web2005/news-1835.html

"Does patenting system play an effective role in protecting inventors' rights and hence leading to a drastic increase in innovations across the industries? World-renowned master on mechanism design and game theory Eric Maskin said no to this "standard logic"."

The paper is here:

http://www.researchoninnovation.org/patent.pdf

Did someone take position against Eric Maskin software patents findings in the economics community?

[ken melvin]

My congratulations to the outstanding three. It would nice to see more focus on living standards, i.e., welfare of the populace as a whole by these superior thinkers instead the focus on markets.

[DRDR]

And his co-author's take on the award is here:
http://www.researchoninnovation.org/WordPress/?p=83

[John]

It's an interesting achievment. Myerson thinks this new mathematical model may be the answer to the challenge Hayek put out to mathematical economics to devise a way of accounting for individual knowledge in a complex market.

This sums up the challenge:

"The economic problem of society is not merely a problem of how to allocate 'given' resources...
It is rather a problem of how to secure the best use of resources known to any of the members of
society, for ends whose relative importance only these individuals know. ...it is a problem of the
utilization of knowledge not given to anyone in its totality. This character of the fundamental
problem has, I am afraid, been rather obscured than illuminated by many of the recent
refinements of economic theory, particularly by many of the uses made of mathematics."
F. A. Hayek, "The Use of Knowledge in Society" (1945).

Great piece by Hayek BTW. I never finished the whole book that that piece appeared in but did read enough bits and pieces to get the grasp of how important his premise is and how hard to trust a lot of complex models are since they simple cannot account for the protean and unknowable element of dispersed knowledge in markets and society. Hayek doubted it could ever be done with enough precision to truly optimize resources via any great deal of intervention. But he didn't deny the possibility of working toward it in a meaningful....some day.

Myerson, building on Hurwicz'z work thinks this might be a giant step toward that end.

Hayek always thought the mathematical economists were guilty of overlooking the importance of communication in market systems....something math has always had a hard time accounting for. Indeed, modern heirs of Hayek often say, as he did, that math is a great servant to but a terrible master of economic theory.

Myerson thinks this may be the "new math" to take expand what is truly knowable. I hope so but I'm a little skeptical.

What do you think Dr. Thoma? Or do think Hayek's preoccupation with the effects of dispersed knowledge that couldn't always be known be all possible parties to be a bit overdone? From what I've read by people like Cowen and Boettke, they seem less than impressed even though Myerson speaks highly of Hayek and the challenge from him he attempts to solve. They don't seem too sure he did it.

[John]

Kevin,

working on markets is what economists DO. If the "Mechanism Design" can deliver what it says it can, the implications on improving the efficacy of markets and institutions could be huge. All those end conditions you mention are worked on, insofar as they CAN BE, are done primarily through markets and trying to improve them.

[wjd123]

After reading the example given in "Mechanism Design for Grandma" I'm left wondering if mechanism design doesn't work best in a world where everyone is ignorant of value and that there isn't something inherently wrong with it when it's used as a way to maximize returns.

Let's say after seeing what similar pieces of art have sold for and getting the opinion of experts, I become convinced that my picture is worth $50,000.

At this point, as far as I'm concerned, any money I receive over that price is a matter of my taking advantage of another persons ignorance and any price below is a matter of another person trying to take advantage of me. At least it is from my point of view.

If I advertise the price at $50,000 I won't regret the fact that I could have gotten twice as much. I got what I thought the painting was worth and I'm satisfied.

All this effort to maximize profit seems un-Quaker to me: a fair price for fair value.

What are these economist trying to do to the conception of fairness?

It seems that giving up subjective fairness to the objective fairness of game theory poisons the well spring of social values.

What happens to social solidarity if every transaction is a matter of me getting over on my fellow man or my fellow man getting over on me.

The game theory would make more sense in a market where everyone is ignorant of value and one is to be established. Using it as a way to maximize value seems anti-social to me