Results for “nobel”

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Here is one summary of Aumann’s work on game theory:

Robert J. Aumann’s has been one of the leading figures in the mathematical surge that has characterized Neo-Walrasian economics and game theory in the past forty years. Aumann entered into economics via cooperative game theory –

In Neo-Walrasian theory, Robert Aumann is perhaps best known for his theory of core equivalence in a "continuum" economy. Aumann introduced measure theory into the analysis of economies with an infinite number of agents – formalizing the "perfectly competitive" scenario. In his classical 1964 paper, Aumann proved the equivalence of the Edgeworthian core and Walrasian equilibrium allocations when there are an uncountable infinite number of agents – thereby providing the limit case for future work on core convergence. In order to prove this result was not vacuous, Aumann went on to prove the existence of equilibrium (1966) in this "perfectly competitive" scenario. On his way, he contributed to mathematics itself by providing a definition of the "integral" of a correspondence (1965), which was previously absent.

Previously, Aumann (1962) had swung Ockham’s razor and helped remove the axiom of completeness of preferences from the Walrasian theory of choice. In another classical paper with F.J. Anscombe in 1964, Aumann formalized the notion of "subjective probability", a concept that had been earlier forwarded by Leonard Savage, that profoundly changed the theory of choice under uncertainty.

His contributions to game theory have perhaps been no less path-breaking. Aumann entered game theory in 1959 to carefully distinguish between infinitely and finitely repeated games. With Bezalel Peleg in 1960, Aumann formalized the notion of a coalitional game without transferable utility (NTU) – one of the organizing beacons of his later research. With Michael Maschler (1963), he introduced the concept of a "bargaining set". In 1974, Aumann went on to identify "correlated equilibrium" in Bayesian games. In 1975, Aumann went on to prove a convergence theorem for the Shapley value. In 1976, he formally defined the concept of "Common Knowledge". Also in 1976, in an unpublished paper with Lloyd Shapley, Aumann provided the perfect folk theorem using the limit of means criterion.

Here is a strange but fascinating interview with Aumann.  It covers John Nash, religion, and the Cold War, among other matters.  Here is his home page, with links to articles.

My favorite Aumann paper is his 1976 piece on agreeing to disagree.  He proved the startling result that if two rational, truth-seeking people have common "priors," in a Bayesian sense rigorously definable, then those two individuals should not disagree once they exchange opinions.  Imagine I think there are 200 balls in the urn, but Robin Hanson thinks there are 300 balls in the urn.  Once Robin tells me his estimate, and I tell him mine, we should converge upon a common opinion.  In essence his opinion serves as a "sufficient statistic" for all of his evidence.  (This analysis also led Aumann to clarify the important game-theoretic concept of "common knowledge.")  Yet people disagree all the time.  Does this mean that priors are rarely common?  That we are rarely rational truth-seekers?  A bit of both?  Robin Hanson is doing much work on this topic.  Here is my paper with Robin, we argue you that if you disagree with your "epistemic peers," you are probably not a truth-seeker.

Congratulations to both Aumann and Schelling, comments are open…

Note my biases, Schelling was my mentor at Harvard.

Tom is an unassuming guy, who looks as if he sells Hush Puppies at the local mall.  But he is one of the sharpest people you will meet.  He delivers the killer point, argument, or anecdote with striking regularity.  Even in his eighties he is sharp as a tack.  He has a deeply philosophical and humanistic approach to economics.  What are his contributions?

1. The idea of precommitment.  You can be better off, either individually, or institutionally, if your choices are limited in advance.  This is a key idea in monetary policy (many governments seek to tie the hands of their central banks), the theory of bargaining (try buying a used car, and see if the salesman doesn’t talk about "the boss upstairs"), and industrial organization (firms may invest in capacity to precommit a market position and deter rivals).  You find the precommitment frequently in movies as well, especially where kidnapping is involved; what is that Mel Gibson flick again?  Here is an excellent Jon Elster piece on the ambiguities of precommitment.  Here is my piece on similar themes.

2. The paradox of nuclear deterrence.  Ever see Dr. Strangelove?  Tom developed the idea that deterrence is never fully credible (why retaliate once you are wiped out?).  The best deterrent might involve precommitment, some element of randomness, or a partly crazy leader.  I recall Tom telling me he was briefly an advisor to Kubrick.  Here is someone else’s essay on the paradox of deterrence.

3. Focal points.  People coordinate by directing their attention to commonly recognized points of importance.  If a meeting time for lunch is not specified, you might assume 12 noon.  If someone mentions "economics blog," of course MarginalRevolution.com comes to mind.  And so on.  Much social coordination occurs in this manner.  I once asked me class: "If you had to hide a one hundred dollar bill in a book, so that your friend would find it, but you could not announce the book, which volume should you choose?"  Many said The Bible but of course the game theorist picks Schelling’s The Strategy of Conflict.

4. Behavioral economics and the theory of self-constraint.  One of Tom’s best pieces is "The Mind as a Consuming Organ," American Economics Review, 1984. Here is a lecture of his on self control.  Will Wilkinson cites a bit of that essay.  Tom made it respectable for economists to talk once again about happiness.

Tom has been an underrecognized father of behavioral economics.  His work on addiction, memory, and personal control was pathbreaking and came nearly twenty years before the "behavioral revolution" in economics.  He analyses the tricks people use to control their wills.  For Tom, self-control is often a more important determinant of happiness than is wealth.  Tom once told me his work sprung from his own attempts to quit smoking, which he did finally manage.  Several times.

5. The economics of segregation. Tom showed how communities can end up segregated even when no single individual cares to live in a segregated neighborhood.  Under the right conditions, it only need be the case that the person does not want to live as a minority in the neighborhood, and will move to a neighborhood where the family can be in the majority.  Try playing this game with white and black chess pieces, I bet you will get to segregation pretty quickly.  Here is a demo model for playing the game.

6. Later in his life Tom turned his attention to issues of global warming.  He has been skeptical of the idea that global warming involves insuperably high economic costs.  Here is a short essay by Tom on the topic.  Here is his excellent AER piece on the same topic.

Tom is not well-represented on the web, here is one photo, but the associated links are mostly broken.  Here is Tom’s piece on Hiroshima.  Here is the Wikipedia bio, note Wikipedia already reports he won the prize.  Here is a great interview with Tom.  Here is Tom’s work on the Copenhagen Consensus.

A few bio facts: Like so many other prestigious American economists, Tom worked for the Marshall Plan in its early stages.  He spent most of his career at Harvard, first in the economics department, later in the Kennedy School.  He had close ties with the Rand Corporation.  He was an advisor to Kissinger during the Vietnam War but quit in disgust.  He is now emeritus at University of Maryland.  I have always interpreted Tom’s political views as those of a conservative Democrat.

Here is a piece I wrote with Dan Klein and Timur Kuran, Salute to Schelling: Keeping it Human.  In this piece, recently published, we asked the Committee to give the Prize to Tom.  Here are Tom’s books, they are all worth reading.

Comments are open, you can add more; Tom could have won more than one Nobel Prize for all his contributions.

Steve Levitt found this list on a blackboard at University of Chicago.  I’m still predicting (as opposed to expecting) Eugene Fama and Richard Thaler for this year’s prize.  Laugh at me when I am wrong, this coming Monday.

1. Nobel prize in environmental economics to Weitzman, Nordhaus

2. Nobel prize in trade theory to Bhagwatti and Dixit

3. Nobel prize in President Bush praising to Krugman and David Brooks

4. Nobel prize in behavioral stuff to Richard Thaler

5. Nobel prize in contracts to Hart, Holmstrom, and Oliver Williamson

6. Nobel prize in development economics to Dasgupta and Deaton

7. Nobel prize in finance to Fama

8. Nobel Price in mechanism design to Milgrom, Myerson and Maskin

9. Nobel prize in family economics to Mincer and Pollak

10. Prize in Political Economy to Alesina, Persson and Tabellini

11. Prize in Modern Macro to Barro and Sargent

The Guardian gives five names: "Robert Barro, Jagdish Bhagwati, Eugene Fama, Paul Krugman and Paul Romer."

Their prediction is Barro, I will go with Fama or Bhagwati.  Gordon Tullock and Thomas Schelling should also be on the short list in Sweden, let’s hope they are.

When someone starts posting odds, let me know.

Tyler has commented on the time-consistency problem so I will post on the other contribution for which Kydland and Prescott were awarded the Nobel, real business cycles. (I see now that Tyler also has a post on real business cycles – that guy is fast!.)

Recessions have almost always been thought of as a failure of market economies. Different theories point to somewhat different failures, in Keynesian theories it’s a failure of aggregate demand, in Austrian theories a mismatch between investment and consumption demand, in monetarist theories a misallocation of resource due to a confusion of real and nominal price signals. In some of these theories government actions may prompt the problem but the recession itself is still conceptualized as an error, a problem and a waste.

Kydland and Prescott show that a recession may be a purely optimal and in a sense desirable response to natural shocks. The idea is not so counter-intuitive as it may seem. Consider Robinson Crusoe on a desert island (I owe this analogy to Tyler). Every day Crusoe ventures onto the shoals of his island to fish. One day a terrible storm arises and he sits the day out in his hut – Crusoe is unemployed. Another day he wanders onto the shoals and he finds an especially large school of fish so he works long hours that day – Crusoe is enjoying a boom economy. Add to Crusoe’s economy some investment goods, nets for example, that take “time to build.” A shock on day one will now exert an influence on the following days even if the shock itself goes away – Crusoe begins making the nets when it rains but in order to finish them he continues the next day when it shines. Thus, Crusoe’s fish GDP falls for several days in a row – first because of the shock and then because of his choice to build nets, an optimal response to the shock.

An analogy is one thing but K and P showed that a model built from exactly the same microeconomic forces as in the Crusoe economy could duplicate many of the relevant statistics of the US economy over the past 50 years. This was a real shock to economists! There are no sticky prices in K & P’s model, no systematic errors or confusions over nominal versus real prices and no unexploited profit opportunities. A perfectly competitive economy with no deviations from classical Arrow-Debreu assumptions could/would exhibit behavior like the US economy.

Models like K & P’s called dynamic, stochastic, general equilibrium (DSGE) models are now the standard in macroeconomics but today they may also include demand side shocks and sticky prices as well as real shocks. Thus thesis has met anti-thesis and the synthesis has demand and supply shocks both contributing to business cycles.

Addendum: More at the Nobel site.

This year’s Nobel Prize in economics went to Finn Kydland and Edward Prescott . Kydland and Prescott wrote a famous 1977 piece (Journal of Political Economy) on time inconsistency. Ever wonder why government policy toward prescription drugs is so problematic? Kydland and Prescott had the answer. The optimal policy will first award the drugmakers a patent and allow them to charge a high price. But once the drug is developed, the “rents” will be confiscated. Optimal policy will revoke the patent and lower the price. After all, once you have the drug. why not let everybody have it cheaply? Of course the drugmakers are aware of this danger in advance, and they are correspondingly reluctant to develop new drugs. Alex posted on this logic just days ago.

In more formal language, the optimal policy is not a time consistent policy. This develops earlier ideas from Thomas Schelling on game theory. Schelling’s point was that nuclear deterrence can fail because, once destruction is aimed your way, you don’t necessarily wish to retaliate.

The logic of time consistency is quite general. It applies to regulatory policy issues, tax policy, monetary policy, foreign policy (threaten Saddam, but do you really want to have go to through with it?), and strategic behavior in a wide variety of settings.

Here are my earlier comments on Prescott, which link to other facets of his work. He arguably has enough contributions to win the prize twice. Kydland is less well known but is an important figure nonetheless. And it doesn’t hurt that he is Scandinavian (Norwegian).

Are the pair deserving? Absolutely yes.

Why did they win this year? I’m guessing that in the midst of a partisan U.S. election, the Swedes did not want to pick Paul Krugman or Robert Barro (pro-Bush), for fearing of appearing too political. Note that the economics prize has stood under criticism for some time now, for not being “scientific” enough.

And this pick the betting market got right. Prescott had opened up a clear lead in the betting market some time ago.

Here is new information from the betting market. Ed Prescott has opened up a lead (then Barro, then Krugman), and Thomas Schelling has joined the list. Read my previous comments; the winner will be announced Monday.

As for tomorrow’s literature prize, John Updike, Margaret Atwood, and Philip Roth are the leaders.

Update: Here is the dark horse who won the literature prize, I am not a big fan.

This year’s Ig Nobel prize in economics goes to the Vatican for outsourcing prayer.

A prize to Tyler, probably more Ig than Nobel, for flagging more than one future winner in Marginal Revolution including the aforementioned prize in economics and the prize in psychology for research on gorilla vision.

If you don’t yet know about the gorilla vision research, I encourage you view this Java video of a basketball game and try to count the total number of times that the people wearing white pass the basketball. Do not count the passes made by the people wearing black. When you’re done read Tyler’s post. As this award indicates some Ig Nobels are given for important research.

Let us look at the betting market, as noted by guest-blogger Michael Stastny on his home blog Mahalanobis. The leaders are:

1) Ed Prescott – A powerhouse economic theorist. He has seminal insights into the role of “real” (i.e., non-monetary) forces in business cycles and whether returns on stocks (7% average) and bonds (a little over 1% on average) reflect the relative risk of these instruments. I am also a fan of his work on monopolies –often government monopolies — as barriers to innovation. His latest work suggests that Americans work more than Europeans because our marginal tax rates are lower.

2) Eugene Fama – His work on empirical finance tested whether the market rewards risk-taking and which variables might predict “excess returns.”

3) Gordon Tullock – My colleague, read my previous remarks.

4) Oliver Williamson – Asset specificity is his key idea. You invest in relationships with business partners and much of the value is specific to that relationship. Then things start going wrong…

5) Paul Krugman – Krugman winning the prize today would mean something very different than Krugman winning the prize five years ago. The chance of this happening is either much greater or much less than I think, I am simply not sure which.

6) Robert Barro – He has shown longer “legs” than his critics seemed to think he would. A powerhouse of macroeconomics and growth. It is less well known that he also did early versions of political business cycle theory and sticky price macroeconomics. I do not believe, however, that the Swedes will choose this year to reward someone who has to some (relative) extent defended Bush economic policies. (If you are wondering, Hans Blix is a heavy favorite to win the Peace Prize.) Barro is a very effective economic popularizer, in addition to his scholarly work.

7) Edmund Phelps – His work on labor markets laid the basis for the next thirty years of macroeconomics. He is not leading the betting market, but many observers consider him to be “due.”

Who is missing? Thomas Schelling is the most notable living theorist of spontaneous order and a key father of applied game theory. Like Phelps, he is “due.” Most of the people on the “New Candidates” list don’t have much of a chance, and here is a list of expired candidates.

Read David Warsh on the new Nobel Prize selections. There has been a paucity of interesting press on these picks, in part because the contributions are so technical. But this commentary, like everything else by David, is worth reading.

Here is one good point:

It was the third time in four years that the award was given for contributions to the tool-kit of empirical economists…The committee seems to be buttressing the case for the Nobel award itself…coming so quickly on the heels of the earlier award, this year’s prize may be directed less at the lay public, which is always hoping to understand what is going on in economics, than at the award’s real constituency – the scientists of the Royal Swedish Academy of Sciences, mainly physical scientists, who actually vote the award.

At the end of the link you will find a separate bit, comparing Arnie to Massachusetts governor Mitt Romney.

I hear it is Robert Engle and Clive Granger, not yet on the major news outlets, more to follow later today.

Addendum: Here is the press release from Stockholm. Here is a short article on cointegration, Granger’s most important contribution. Here is an introduction to ARCH models, a technique pioneered by Engle. Here is Engle’s home page, and Clive Granger’s home page.

My take: Very good picks, economists use their contributions all the time, note that their work is of less interest to the general public than is usually the case.