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U.S. trio wins economics Nobel

Their mechanism design theory is a driving force in commerce.

By Associated press
Published October 16, 2007

STOCKHOLM, Sweden - Americans Leonid Hurwicz, Eric S. Maskin and Roger B. Myerson won the Nobel economics prize Monday for developing a theory that helps explain how sellers and buyers can maximize their gains from a transaction.

Hurwicz, 90, is the oldest Nobel winner ever, the academy said. "I really didn't expect it," said the Moscow-born researcher, an emeritus economics professor at the University of Minnesota in Minneapolis.

The three winners "laid the foundations of mechanism design theory," which plays a central role in contemporary economics and political science, the Royal Swedish Academy of Sciences said.

Essentially, the three men, starting in 1960 with Hurwicz, studied how game theory can help determine the best, most efficient method for allocating resources, the academy said.

Their research has helped explain how incentives and private information affect decisionmaking procedures involved in economic transactions including, for example, what insurance polices will provide the best coverage without inviting misuse.

It has been used in everything from labor negotiations to the auctioning of government bonds and has helped countries and companies better understand how markets function even when conditions are rocky.

Maskin, 56, is professor at the Institute for Advanced Study at Princeton, N.J., and Myerson, 56, is a professor at the University of Chicago in Illinois. Maskin said he was relieved Hurwicz was among the winners.

"Many of us had hoped for many years that he would win," Maskin said in Stockholm.

Myerson said he had been inspired by the work of his fellow laureates.

"There were a lot of us working in this area in the late 1970s," he said, categorizing his work as investigating "how information gets used in society to allocate resources."

The trio's work is used to help companies, even countries, understand the alternatives to traditional markets.

"There are applications to almost all areas," said Per Krusell, a member of the Nobel Committee for Economics at the academy. "One interesting case right now is that more is sold over the Internet and we don't really know how that market works. This method can actually be used - and many of the economists who are involved in trying to understand how the Internet market works use this type of analysis."

Much like game theory, mechanism design is applied to situations where perfect markets cannot be found, such as a political give-and-take between different interest groups or even within companies themselves.

The trio's work showed how to reach a desired outcome, such as improvements in social welfare or fatter profits, and what sort of government regulation should be put into place.

FAST FACTS

What is game theory?

Game theory, as used in the context of economics, studies strategic interactions between agents. In strategic games, agents choose strategies that will maximize their return, given the strategies the other agents choose. It provides a formal modeling approach to social situations in which decisionmakers interact with other agents. Game theory was advanced by John Nash, who won the prize in 1994.

[Last modified October 16, 2007, 00:48:00]