Results for “kenneth arrow”
47 found

Kenneth Arrow says

by Tyler Cowen June 23, 2018 at 9:03 pm in

1. The family of development economist Hollis Chenery owned the race horse Secretariat (!, related sources).

2. The opposition to putting the Reagan Library at Hoover and Stanford came from NIMBY considerations, not ideology.

3. The historian of Germany Gordon Craig was the greatest lecturer Arrow ever heard [TC: I can’t find any of him on YouTube.]

4. Arrow: “Well, I do remember an awful lot, and it’s not photographic memory. I don’t remember the page exactly. I read things in some order, and they come back, but I can’t explain how or why it happens.

…I think it’s just a desire to understand. I just enjoy learning things. Learning. I don’t mean…I like to systematize, not just memorize. To put them together. I have this characteristic, even when I was young. I treat everything like it was geography; in my mind I’d try to put the things on a map. When I was reading history I’d try to make up genealogical tables, of the kings of England or something. So I had this tendency to try to systematize things, to try and understand remote sounding things.”

5. His advice for Larry Summers [his nephew]: “Err on the side of too much regulation.”

6. Arrow once spent six months on the Council of Economic Advisors. His two major effects may have been to veto an American version of the SST and to help veto the digging of a second Panama Canal.

Those are all from the frank interviews with Arrow in On Ethics and Economics: Conversations with Kenneth J. Arrow, by Arrow of course and also by Kristen Renwick Monroe and Nicholas Monroe Lampros. Interesting throughout.

Kenneth Arrow, weather officer

by Tyler Cowen May 21, 2018 at 1:10 am in

Following the U.S. declaration of war on December 8, 1941, Arrow, who was certain to be drafted, enlisted in the hope of securing an officer’s commission in the U.S. Army Corps where he believed he would have a chance to use his mathematical and statistical training. He was quickly approved to attend an aviation training program at New York University in October 1942, taking “active duty” breaks from classes for rifle drill, which he and his colleagues thought rather silly. Nonetheless, he came out of that program in September 1943 commissioned as a weather officer with the rank of second lieutenant and was assigned to a weather research facility in Asheville, North Carolina; in July 1945 he was transferred to the weather division headquarters of the Army Air Force. It was during that time in Asheville that he wrote a memorandum that later, in 1949, became his first professional paper (“On the Use of Winds in Flight Planning” in the Journal of Meteorology). That paper presented an algorithm for taking advantage of winds aloft to save fuel on North Atlantic air crossings, an idea that was not acted upon by the military at that time but became the canonical practice for North Atlantic flight paths in the postwar period.

That is from the new, excellent, and consistently interesting Finding Equilibrium: Arrow, Debreu, McKenzie and the Problem of Scientific Credit, by Till Düppe and E. Roy Weintraub. Unlike many history of economic thought books, this one tells you “what actually happened,” such as how an Econometrica editor (Robert Strotz) decided to publish the McKenzie paper before the Arrow-Debreu paper, when he had both in hand.

Alas Kenneth Arrow has passed away

by Tyler Cowen February 21, 2017 at 8:38 pm

Here are various notices on Twitter, here are mentions on MR.

Kenneth Arrow on Piketty

by Tyler Cowen December 18, 2015 at 2:14 am in

Here is the closing paragraph of his short but interesting piece:

We might be especially moved to consider a consumption tax if we consider that Piketty’s proposed wealth tax seems in any case to be much higher than it sounds. If we are to assume, say a 5% return on property, then a 2% per annum tax on wealth would amount to about 40% of property income. If investment is financed by property income, this implies a very considerable reduction in investment. Is this desirable? One might doubt it, especially since the effects on investment would be substantial, even apart from incentive effects, which might also be quite considerable.

I would stress that a capital gains tax — not indexed for inflation — shares many properties of a wealth tax. In recent academic debates, this point about wealth taxes is not being made nearly enough.

Interview with Kenneth Arrow

by Tyler Cowen July 28, 2009 at 4:04 pm in

Medicine

With Conor Clarke, it's about his classic paper on health care. Excerpt:

…the question that I started with was why health insurance coverage was
limited. There was virtually no insurance outside of hospitalization,
which was limited and heavily taxed. When I heard about this myself, it
was just as a consumer. My first health-care plan as a professor had a
$15,000 ceiling. A ceiling? I was thinking that should be a floor!
$15,000 I can handle, but above that… it would be a problem.

The most interesting segments are the (hard-to-excerpt) remarks on the erosion of professional standards in medicine.

By the way, what will life expectancy be when population is infinite?

Kenneth Arrow gets a sentence

by Tyler Cowen October 16, 2008 at 7:29 am in

Economics

There is obviously much more to the full understanding of the current
financial crisis, but the root is this conflict between the genuine social value
of increased variety and spread of risk-bearing securities and the limits
imposed by the growing difficulty of understanding the underlying risks imposed
by growing complexity.

Here is more. Arrow, of course, has long been interested in issues of complexity and computability, even though his work is within the usual neoclassical confines. One way of putting the point is that starting a new market creates a negative externality on other people by eroding their knowledge and understanding of context and thus limiting the general ease of economy-wide transparency. I’m not sure this is true (we usually think of the extra market as adding knowledge), but it is an interesting way to categorize current problems.

Kenneth Arrow on academic freedom

by Tyler Cowen June 22, 2006 at 7:56 pm in

Education

Bowen: There was a study done recently by an economist at Santa Clara University,
Daniel Klein, showing disproportionate numbers of registered Democrats
versus registered Republicans in various departments at the University of California, Berkeley,
and Stanford. [The study’s findings are available at
http://www.ratio.se/pdf/wp/dk_aw_voter.pdf.] He has concluded that this
kind of ideological imbalance has a negative impact on the education of
students. He implies that
there is a temptation to hire one’s own. Conservative activist David
Horowitz has made much the same kind of statement, saying that faculty
are preaching rather than teaching. And why? Because there’s a gross
imbalance between liberals and conservatives in the professoriate. Effectively,
they are calling for government regulation of the academy [TC: Klein is not, this is inaccurate]. Do you worry
about calls for legislation at the state level to correct this
situation? Does this worry you as an economist or as a professor?

Arrow:
You know, it certainly does worry me. It would worry me a lot if
legislation passed. There was a concern at one time that there would be
repression of the left. And now there are concerns that the left is
taking over. It’s hard for me to judge, of course, but I must say that
my department contains
a number of Republicans. And they were appointed by a democratic group,
whose members said these guys are good, and we’ve got to hire them. And
so far, I have not seen it work the other way, but I’m a little
concerned about where it could swing. In this case, the criticism seems
to be just wrong, because I think the departments hire on the basis of
merit. And I think it’s nonsense to say that we’re discriminating
against Republicans. We hire them all the time. On the other hand,
there was a department here that until the 1960s would not appoint a
Jew. And, finally, the university did interfere, you see, in that case.
The dean took over the department. He took away the power to appoint
from the department and changed its composition in three or four
years. In fact, I was amazed how rapidly he was able to turn things around
to strengthen an already very good department. To defend the autonomy
of that department would not have been something I would have been very
happy to do.

Bowen: The economics department at the University of Chicago
has had a reputation for many years for being quite conservative. Do
you think that’s the exception that proves the rule that you hire, as
you said earlier, on the basis of merit, not on the basis of party
identification of ideology?

Arrow:
There are people in that department who are not conservative. It’s a
very good department. Most of the conservatives are really quite
outstanding. I think they flock together. I
don’t think it’s entirely the case where you pick your own kind. I
don’t think the economics department here is reproducing itself.
They’re different politically and methodologically. I think
methodological problems have been bigger more often than political
issues. I do not believe the
university, the central administration, should be totally unconcerned
about appointments. I used to believe that the department had to be
completely autonomous. It took me a couple of years to realize that
that was not right.

I can remember an instance at Chicago
in which there was an incident involving a professor of economics who
was sort of a village atheist type. He was a very good economist, but a
little eccentric. He believed that religion was one of the big
oppressive things in this world. This fellow saw a priest in class. He
went and gave his whole lecture on the evils of the Catholic church.
The next time the priest came, he gives another lecture. The priest
finally quit the class, and the professor said that he could finally go
on with the course.

Well,
you know, the priest went to the chair of the department who had a very
good record on academic freedom at the university. And the chair said
it was a question of academic freedom. He wouldn’t interfere with this
professor.

TC: Does anyone have data on Stanford?

Summers on Arrow

by Alex Tabarrok February 24, 2017 at 9:31 pm in

Economics

Larry Summers reflects on Ken Arrow with a memory that captures well the academic life. I had similar experiences watching my father, a professor of mechanical engineering, interacting with his students in our home.

My mother’s brother, the Nobel economist Kenneth Arrow, died this week at the age of 95. He was a dear man and a hero to me and many others. No one else I have ever known so embodied the scholarly life well lived.

I remember like yesterday the moment when Kenneth won the Nobel Prize in 1972. Paul Samuelson—another Nobel economist and, as it happens, also my uncle—hosted a party in his honor, to which I, then a sophomore at MIT, was invited. It was a festive if slightly nerdy occasion.

As the night wore on, Paul and Kenneth were standing in a corner discussing various theorems in mathematical economics. People started leaving. Paul’s wife was looking impatient. Kenneth’s wife, my aunt Selma, put her coat on, buttoned it and started pacing at the door. Kenneth raised something known as the maximum principle and the writings of the Russian mathematician Pontryagin. Paul began a story about the great British mathematical economist and philosopher Frank Ramsey. My ride depended on this conversation ending, so I watched alertly without understanding a word.

But I did understand this: There were two people in the room who had won Nobel Prizes. They were the two people who, after everyone else was exhausted and heading home, talked on and on into the evening about the subject they loved. I learned that night about my uncles—about their passion for ideas and about the importance and excitement of what scholars do.

The tax provisions of the new climate and taxes bill

by Tyler Cowen August 8, 2022 at 12:24 am in

I can’t quite bring myself to call it the Inflation Reduction Act. One thing I have learned from experience is how hard it is to judge such bills upfront. For instance, I just learned that the electric vehicle tax credits do not currently apply to any electric vehicle whatsoever, nor will they obviously apply to any electric vehicle to be produced in the near future. Now the United States might take a larger role in battery production, or perhaps the law/regulation will be modified — don’t assume these standards will collapse. Still, the provisions are going to evolve. Or maybe there is a modest chance that provision of the bill simply will never kick in.

I don’t know.

How about the corporate minimum tax provisions? It sounds so simple to address unfairness in this way, and how much opposition will there be to a provision that might cover only 150 or so companies? But a lot of the incentives for new investment will be taken away, including new investment by highly successful companies. (You can get your tax bill down by making new investments, for instance, and that is why Amazon has paid relatively low taxes in many years.) Most of the companies covered are expected to be manufacturing, and didn’t we hear from the Democratic Party (and indeed many others) some while ago that manufacturing jobs possess special economic virtues? Furthermore, some of the tax incentives for green energy investments will be taken away. Has anyone done and published a cost-benefit analysis here? That is a serious question (comments are open!), not a rhetorical one.

Here are some other concerns (NYT):

“The evidence from the studies of outcomes around the Tax Reform Act of 1986 suggest that companies responded to such a policy by altering how they report financial accounting income — companies deferred more income into future years,” Michelle Hanlon, an accounting professor at the Sloan School of Management at the Massachusetts Institute of Technology, told the Senate Finance Committee last year. “This behavioral response poses serious risks for financial accounting and the capital markets.”

Other opponents of the new tax have expressed concerns that it would give more control over the U.S. tax base to the Financial Accounting Standards Board, an independent organization that sets accounting rules.

“The potential politicization of the F.A.S.B. will likely lead to lower-quality financial accounting standards and lower-quality financial accounting earnings,” Ms. Hanlon and Jeffrey L. Hoopes, a University of North Carolina professor, wrote in a letter to members of Congress last year that was signed by more than 260 accounting academics.

How bad is that? I do not know. Do you? My intuition is that the book profits concept cannot handle so much stress. By the way, kudos to NYT and Alan Rappeport for doing that piece. It is balanced but does not hold back on the skeptical side.

And here’s one matter I haven’t seen anyone mention: the climate part of the bill, and indeed most of the accompanying science and chips bill, assume in a big way that private sector investment is deficient in solving various social problems and needs some serious subsidy and direction.

Now the direction of that investment is a separate matter, but when it comes to the subsidy do you recall Kenneth Arrow’s classic argument that the private sector does not invest enough in risk-taking? Private investors see their private risk as higher than the actual social risk of the investment. This argument implies subsidies for investments, as much of the rest of the bill and its companion bill provide, not additional taxes on investment. This same kind of argument lies behind Operation Warp Speed, which most people supported, right?

And yet I see everyone presenting the new taxes on investment in an entirely blithe manner, ignoring the fact that the rest of the bill(s) implies private investment needs to be subsidized or at least taxed less.

Overall the ratio of mood affiliation and also politics in this discussion, to actual content, makes me nervous. The bills went through a good deal of uncertainty, and so a significant portion of the intelligentsia has been talking them up. Biden after all needs some victories, right? And at some point the green energy movement needs some major legislative trophies, right? What I’d like to see instead is a more open and frank discussion of the actual analytics.

It is very good when a top economist such as Larry Summers has real policy influence, in this case on Joe Manchin. But part of that equilibrium is that other economists start watching their words, knowing some other Democratic Senator might fall off the bandwagon. There is Sinema, Bernie Sanders has been making noise and complaining, someone else might have tried to extract some additional rents, and so on.

The net result is that you are not getting a very honest and open discussion of what is likely to prove a major piece of legislation.

Paul Milgrom, Nobel Laureate

by Tyler Cowen October 12, 2020 at 6:09 am in

Economics

Most of all this is a game theory prize and an economics of information prize, including game theory and asymmetric information. Much of the work has had applications to auctions and finance. Basically Milgrom was the most important theorist of the 1980s, during the high point of economic theory and its influence.

Here is Milgrom’s (very useful and detailed) Wikipedia page. Most of his career he has been associated with Stanford University, with one stint at Yale for a few years. Here is Milgrom on scholar.google.com. A very good choice and widely anticipated, in the best sense of that term. Here is his YouTube presence. Here is his home page.

Milgrom, working with Nancy Stokey, developed what is called the “no trade” theorem, namely the conditions under which market participants will not wish to trade with each other. Obviously if someone wants to trade with you, you have to wonder — what does he/she know that I do not? Under most reasonable assumptions, it is hard to generate a high level of trading volume, and that has remained a puzzle in theories of finance and asset pricing. People are still working on this problem, and of course it relates to work by Nobel Laureate Robert Aumann on when people should rationally disagree with each other.

Building on this no-trade result, Milgrom wrote a seminal piece with Lawrence Glosten on bid-ask spread. What determines bid-ask spread in securities markets? It is the risk that the person you are trading with might know more than you do. You will trade with them only when the price is somewhat more advantageous to you, so markets with higher degrees of asymmetric information will have higher bid-ask spreads. This is Milgrom’s most widely cited paper and it is personally my favorite piece of his, it had a real impact on me when I read it. You can see that the themes of common knowledge and asymmetric information, so important for the auctions work, already are rampant.

Alex will tell you more about auctions, but Milgrom working with Wilson has designed some auctions in a significant way, see Wikipedia:

Milgrom and his thesis advisor Robert B. Wilson designed the auction protocol the FCC uses to determine which phone company gets what cellular frequencies. Milgrom also led the team that designed the 2016-17 incentive auction, which was a two-sided auction to reallocate radio frequencies from TV broadcast to wireless broadband uses.

Here is Milgrom’s 277-page book on putting auction theory to practical use. Here is his highly readable JEP survey article on auctions and bidding, for an introduction to Milgrom’s prize maybe start there?

Here is Milgrom’s main theoretical piece on auctions, dating from Econometrica 1982 and co-authored with Robert J. Weber. it compared the revenue properties of different auctions and showed that under risk-neutrality a second-price auction would yield the highest price. Also returning to the theme of imperfect information and bid-ask spread, it showed that an expert appraisal would make bidders more eager to bid and thus raise the expected price. I think of Milgrom’s work as having very consistent strands.

With Bengt Holmstrom, also a Nobel winner, Milgrom wrote on principal-agent theory with multiple tasks, basically trying to explain why explicit workplace incentives and bonuses are not used more widely. Simple linear incentives can be optimal because they do not distort the allocation of effort across tasks so much, and it turned out that the multi-task principal agent problem was quite different from the single-task problem.

People used to think that John Roberts would be a co-winner, based on the famous Milgrom and Roberts paper on entry deterrence. Basically incumbent monopolists can signal their cost advantage by making costly choices and thereby scare away potential entrants. And the incumbent wishes to be tough with early entrants to signal to later entrants that they better had stay away. In essence, this paper was viewed as a major rebuttal to the Chicago School economists, who had argued that predatory behavior from incumbents typically was costly, irratoinal, and would not persist.

The absence of Roberts’s name on this award indicates a nudge in the direction of auction design and away from game theory a bit — the Nobel Committee just loves mechanism design!

That said, it is worth noting that the work of Milgrom and co-authors intellectually dominated the 1980s and can be identified with the peak of influence of game theory at that period of time. (Since then empirical economics has become more prominent in relative terms.)

Milgrom and Roberts also published a once-famous paper on supermodular games in 1990. I’ve never read it, but I think it has something to do with the possible bounding of strategies in complex settings, but based on general principles. This was in turn an attempt to make game theory more general. I am not sure it succeeded.

Milgrom and Roberts also produced a well-known paper finding the possible equilibria in a signaling model of advertising.

Milgrom and Roberts also wrote a series of papers on rent-seeking and “influence activities” within firms. It always seemed to me this was his underrated work and it deserved more attention. Among other things, this work shows how hard it is to limit internal rent-seeking by financial incentives (which in fact can make the problem worse), and you will see this relates to Milgrom’s broader work on multi-task principal-agent problems.

Milgrom also has a famous paper with Kreps, Wilson, and Roberts, so maybe Kreps isn’t going to win either. They show how a multi-period prisoner’s dilemma might sustain cooperating rather than “Finking” if there is asymmetric information about types and behavior. This paper increased estimates of the stability of tit-for-tat strategies, if only because with uncertainty you might end up in a highly rewarding loop of ongoing cooperation. This combination of authors is referred to as the “Gang of Four,” given their common interests at the time and some common ties to Stanford. You will note it is really Milgrom (and co-authors) who put Stanford economics on the map, following on the Kenneth Arrow era (when Stanford was not quite yet a truly top department).

Not what he is famous for, but here is Milgrom’s paper with Roberts trying to rationalize some of the key features of modern manufacturing. If nothing else, this shows the breadth of his interests and how he tries to apply game theory generally. One question they consider is why modern manufacturing has moved so strongly in the direction of greater flexibility.

Milgrom also has a 1990 piece with North and Weingast on the medieval merchant guilds and the economics of reputation, showing his more applied side. In essence the Law Merchant served as a multilateral reputation mechanism and enforced cooperation. Here is a 1994 follow-up. This work paved the way for later work by Avner Greif on related themes.

Another undervalued Milgrom piece is with Sharon Oster (mother of Emily Oster), or try this link for it. Here is the abstract:

The Invisibility Hypothesis holds that the job skills of disadvantaged workers are not easily discovered by potential new employers, but that promotion enhances visibility and alleviates this problem. Then, at a competitive labor market equilibrium, firms profit by hiding talented disadvantaged workers in low-level jobs.Consequently, those workers are paid less on average and promoted less often than others with the same education and ability. As a result of the inefficient and discriminatory wage and promotion policies, disadvantaged workers experience lower returns to investments in human capital than other workers.

With multiple, prestigious co-authors he has written in favor of prediction markets.

He was the doctoral advisor of Susan Athey, and in Alex’s post you can read about his auction advising and the companies he has started.

His wife, Eva Meyersson Milgrom, is herself a renowned social scientist and sociologist, and he met her in 1996 while seated next to her at a Nobel Prize dinner in Stockholm. Here is one of his papers with her (and Ravi Singh), on whether firms should share control with outsiders. Here is the story of their courtship.

My Stanford talk on all the problems with my arguments in Stubborn Attachments

by Tyler Cowen November 30, 2019 at 11:15 am in

I was pleased to have been invited to deliver the Kenneth Arrow Lecture for the year on Ethics and Leadership, here is the talk, which consists of steelmanning various critics and creating my own, it has quite a bit of new material, plus Q&A with Stanford attendees: