Home > awards > The Nobel Prizes: the game’s up

The Nobel Prizes: the game’s up

15 October, 2007; 13:06 Leave a comment Go to comments

In my last post about the Nobel Prizes, this year’s prize in economics has gone to…

OK, you got me. I have no idea how to pictorially represent these winner’s ideas. Instead, I’ll point you back to a film you may have seen: A Beautiful Mind. The movie told the life story of John Nash, one of the 1994 Economics Laureates who happened to struggle with schizophrenia. John Nash is best known in my field for the term Nash Equilibrium, which is helpful in explaining why, in certain situations, a road system might be congested day after day, even if there exists a more efficient way to use the roadway system as it’s already built. Nash explained this through game theory. Game theory has, in fact, taken economics by storm. It is particularly useful because it can help explain many market situations where classical economics fail—and these turn out to be quite often!

I had not heard of these three economists previously, but just in reading the news release and skimming a few articles through Google Scholar, it occurs to me that they would be very interesting to explore further. The label that the Nobel Committee uses to group their contributions together is “mechanism design theory”. To explain the concept, let’s put it this way. Game theory is typically the study of how individuals would act, to their own individual benefit, in strategic ways, given a set of circumstances they find themselves in for what rules need to be followed. One might say that these rules are the “mechanics” of the situation. Applications of game theory typically identify real-world situations and represent them using simplified rules, then study what we should expect the agents to do, and what aggregate outcomes would result.

Mechanism Design Theory, from what I can tell, applies game theory in the opposite direction. Instead of matching rules to reality and searching the outcome, we instead identify the outcome we would like to produce, and essentially “reverse-engineer” the mechanical rules that would produce those situations. This is intriguing for me in the sense that the defined outcomes could be based on the same social goals that we talk about in an urban planning context: things like economic prosperity and social equality. This is certainly worth reading more on.

Although I am intrigued by this results, I do worry that the Economics prize has remained too conservative in its awards. I raised the flag last week that the prize has never been awarded to a woman. As I think about this further, I’m starting to think this might be significant not only from a gender-equality standpoint, but also from the standpoint of recognizing the broader extents of economics as a field. I seem to recall that in 2002, when Daniel Kahneman was chosen to share the award with Vernon Smith, there was much hubbub about how the Academy had been liberal in awarding the prize to someone who was originally trained as a psychologist. In fact, quoting from Wikipedia: “In February 1995, it was decided that the economics prize be essentially defined as a prize in social sciences, opening the economics prize to great contributions in fields like political science, psychology, and sociology.” This would seem to suggest that we should expect prize-winners in all sorts of fields, and in particular we should expect to see laureates whose works have pushed the boundaries of economics and challenged its very core—one might say the philosophy of economics—and, by having done so, have established new and vibrant avenues of subsequent work that have the potential to benefit society. But so far, the advancements that have been recognized have essentially been oriented around the tools we use to support economic analysis, and developing theories for where the existing tools break down.

And yet, don’t ask me for an alternate suggestion. I don’t have any.

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Categories: awards
  1. Janet Franklin
    21 October, 2007; 0:40 at 0:40

    Turns out you have visited the home of one of the Nobel prize winners in Economics. Really! Doris mentioned that when going downstairs in her building earlier this week, there were many news stations and personnel at the entrance. Right, the prize-winner is a resident of her condo, and the news media were there to interview him.

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