Leonid Hurwicz Economic Sciences Under ideal conditions, markets should ensure an efficient allocation of resources. In practice, however, this is rarely the case. Competition is not completely free, agents protect their own interests or act behind closed doors, consumers are ill-informed and capitalist ambition may have adverse social costs. With so many actors in any market playing their cards close to their chest for selfish ends progress can be difficult. To help make sense of these situations Leonid Hurwicz created mechanism design theory, which was further developed by fellow laureates Eric Maskin and Roger Myerson.
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Reprinted with permission from the author and Twin Cities Business magazine. Professor Hurwicz says that he is simply a product of his history. Leonid Hurwicz was born in Moscow on August 21, after the Kirensky revolution but before the October Bolshevik revolution.
But I know we traveled in various imperfect ways, such as horse-drawn wagon, to arrive in Poland. His father was a lawyer, with a degree from the Sorbonne in Paris. In Warsaw a five-year internship was required to practice law, so he taught history while completing that. It was a time of pogroms throughout Europe.
Though he and his family were not swept up in anything so frightening, Hurwicz does recall strange, random attacks. One year, the university in Warsaw decided the Jewish community had not contributed its share of corpses to the medical school. When a group tried to force Jewish students to sit in a segregated section of their classrooms, the university rector failed to intervene. The Jewish students, including Leo, stood in the back of the room for the entire year in protest.
The protest succeeded and the following year Jewish students were seated again. And with my professors, I felt no discrimination. So Hurwicz went to France and then Switzerland on a transit visa.
By the spring of , they had been arrested and taken to a labor camp in Arctic European Russia. He spent months in Geneva, enrolled part time as a student, living off what little money he had left, and hoping for news of his family.
Hurwicz contacted his cousins in Chicago, whom his parents had told him would help if he needed to leave. His ticket was now worthless because no Italian ship could enter American ports.
He found a way. An airline opened briefly between Switzerland and Barcelona, both neutral cities. Hurwicz was able to fly to Spain and take a train to Madrid, then Lisbon.
With a refund and the little he had earned tutoring, Hurwicz booked passage on the Greek boat. In fact, it was a miracle I had this one. He moved to Massachusetts and began working under Samuelson, who would win the Memorial Prize for economics in At MIT, Hurwicz tested a hypothesis about how businesses arrive at prices for their goods and services. He returned to Chicago in mid-June , by now a more desirable candidate for academic appointment. After Pearl Harbor was bombed in December , Hurwicz went to his statistics professor and asked how he could help the war effort.
The professor, engaged in research on a brand new invention called radar, brought him onto the project. This led to an appointment with the Institute of Meteorology at the University of Chicago, where Hurwicz taught prospective Army and Navy inductees statistics, mathematics and physics needed to analyze weather data.
At Chicago, he hired, sight unseen, a young meteorology assistant from Wisconsin named Evelyn Jensen. They were married in July of ; the first of their four children was born two years later. But in early , with McCarthyism rampant on college campuses, his politically liberal colleagues in the economics department were targeted, and Hurwicz resigned in protest.
Soon afterward, he heard from an Iowa friend who had moved north and thought Hurwicz should consider joining the economics department at the University of Minnesota. Within a couple of months, Hurwicz moved his family to Minneapolis, where he would develop the idea that would win him the Economy Prize.
But actually, there is usually some chapter, not too long, which tells you there are different mechanisms that operate in a particular economy… My question was, What other systems or mechanisms or variables are possible? Hurwicz not only pondered the question, but used mathematics to create working economic models. He developed mechanism design to help businesses and other organizations arrive at solutions that combine truthfulness, individual rationality, and social welfare.
Then there is the true game, the one like real life, where the strategies and moves people make, some of them contain illegal gains. So you take into account when you write the rules of the game that the players will try to cheat.
But when he began working on it in the s, the idea of factoring in the self-interest of players in business transactions was considered cutting edge. He and his colleagues believed that incentives could encourage players to arrive at the best possible outcome not only for themselves but for the other players in the game. An old coal-burning energy plant is spewing pollutants. In the not-so-distant past, the response would be for a government regulator to simply demand that the utility reduce emissions or be shut down.
But there are problems with this approach. The government establishes a cap to limit emissions. The emissions allowed under the new cap are then divided up into individual permits that give producers the right to emit that amount. Companies are free to buy and sell these permits. Those who can reduce emissions at a low cost do so, then sell their permits at a profit to companies that continue to pollute. Those high polluters thus have an incentive to reduce their own emissions.
Mechanism design builds on game theory, which arose in the s as a mathematical means of studying various interactions, including business negotiations and transactions. Mechanism design is commonly used now to set up transactional strategies. Hurwicz translated the lessons of oppression into a now global belief system that is equal parts economics and philosophy, and that helps solve specific problems in the real world.
The same is true, Hurwicz postulates, in business, where a handful of righteous individuals can rebalance an equation thrown off kilter by dishonest peers. The information is sometimes updated with an addendum submitted by the Laureate. Again, world events dictated his course. Leonid Hurwicz died on June 24, Back to top Back To Top Takes users back to the top of the page.
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Interactions of individuals and institutions, markets and trade are analyzed and understood today using the models he developed. A man of commanding intellect, Hurwicz is described as calm and humble. He loves to teach and to connect with people and is admired for thinking of others as equals. He is among the first economists to recognize the value of game theory and is a pioneer in its application. Hurwicz shared the Nobel Prize in Economics, as it is commonly called, with Eric Maskin and Roger Myerson for their work on mechanism design. Soon after Leonid's birth, the family returned to Warsaw , Poland. Hurwicz and his family experienced persecution by both the Bolsheviks and Nazism ; he again became a refugee when Hitler invaded Poland in
Hurwicz was educated and grew up in Poland, and became a refugee in the United States after Hitler invaded Poland in He was a research associate for the Cowles Commission between and In he became an associate professor of economics at Iowa State College. Hurwicz joined the University of Minnesota in , becoming Curtis L. Carlson Regents Professor of Economics in Hurwicz was among the first economists to recognize the value of game theory and was a pioneer in its application. Soon after Leonid's birth, the family returned to Warsaw.