Showing posts with label Mechanism-Design. Show all posts
Showing posts with label Mechanism-Design. Show all posts

Wednesday, October 17, 2007

The Nobel Prize in Economics

This past Monday the Nobel Prize in Economics was awarded to;

Professor Leonid Hurwicz

Professor Eric S. Maskin

Professor Roger B. Myerson

The title of this entry will take you to the two minute summary of "Mechanism Design" on nobelprize.org, clicking on the Professor's name will take you to a brief telephone interview where the Laureate describes their area of research. The prize was awarded for their work in "Mechanism Design", an area of research that is related to game theory and one that assumes the Nash Equilibrium. (Professor John Nash, 1994 Nobel Laureate.) Mechanism Design involves the researching, building and testing of rules and frameworks to ensure an equitable or fair distribution of economic externalities.

The best example of the theory is described in Alex Tabarrok's Reason Online article about two kids and a pie. The problem is how do you distribute the pie fairly so that both of the kids are satisfied with the outcome. A simple example of Mechanism Design implements the rule that the first kid cuts the pie and the second kid chooses his piece first. This process ensures that the cut is as equitable as possible. Mechanism Design is involved in establishing the ways and means of distributing resources.

The best source of information on the Nobel Prize laureates has been "Bloomburg's On the Economy podcast with Tom Keene". You can subscribe to the podcast on iTunes here, I highly recommend it. The next best is an article by Pete Boettke in yesterday's Wall Street Journal and is well summarized on his blog The Austrian Economists.

Here are Boettke opening paragraphs:

Yesterday Leonid Hurwicz, Eric Maskin and Roger Myerson won the Nobel Prize in Economic Science for their pioneering work in the field of "mechanism design." Strangely, some have used this occasion to disparage free-market economics. But the truth is the deserving recipients owe a direct debt to free-market thinkers who came before them.

Mechanism design is an area of economic research that focuses on how institutional structures can be manipulated by changing the rules of the game in order to produce socially optimal results. The best intentions for the public good will go astray if the institutional arrangements are not consistent with the self-interest of decision makers.

Finally I want to highlight two podcasts on Bloomberg. Professor Paul Samuelson's comments on the new Nobel Prize Laureates. Samuelson won the Nobel in 1970 and is 92 years old, the efficiency of his comments reflect his wisdom and skill in discussing economics in easy to understand terms. The second podcast of very high interest is of Professor Thomas Schelling who won the Nobel in 2005 for "enhancing our understanding of conflict and cooperation through game-theory analysis". Author of one of my favorite books "The Strategy of Conflict" Schelling's lectures are the most profound and stimulating that I am aware of.

So in terms of this research that we are doing here, using the Joint Operating Committee as the key organizational construct of the industry, we will need to open a new vein of research in "Mechanism Design" for the development of this software.

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