Kenneth Arrow, youngest to win Nobel for economics, dies at 95
- Deutsche Bank scales back investment bank as profit drops
- News in Numbers: India ranks 138 on World’s Press Freedom Index
- Govt may buy RBI’s stake in National Housing Bank
- The latest updates to Gmail for web will make you more productive, keep data secure
- Yes Bank Q4 profit rises 29% to Rs1,179.44 crore
Washington: Kenneth Arrow, whose study of how the various parts of an economy work toward equilibrium won him the Nobel Prize in 1972 and established him as one of the founders of modern economics, has died, The New York Times reported. He was 95.
Arrow died at his home in Palo Alto, California, on Tuesday, The Times said, citing his son David.
With John R. Hicks, a professor at Oxford University, Arrow was honoured by the Royal Swedish Academy of Sciences in 1972 “for their pioneering contributions to general economic equilibrium theory and welfare theory”. Arrow was 51 at the time, which stands as the youngest age of any recipient of the Nobel for economics.
Arrow, who held professorships at Stanford and Harvard universities, explained general equilibrium as the principle that even far-flung outposts of the economy, such as mortgage-backed securities and automobile sales, influence each other.
“Repercussions can go on for a very long time and in different routes,” Arrow said in a 2009 interview with the Atlantic magazine. “That’s where the world of general equilibrium comes from—and it’s also the idea that the things tend to balance out. The central picture we have is that prices will adjust so that balancing occurs.”
Hicks died in 1989 at 85. His 1939 “Value and Capital” was a seminal work in equilibrium theory and influenced Arrow during his graduate studies in the 1940s. For his doctoral dissertation, Arrow looked at what Hicks’s theories didn’t answer.
“My aim was to rewrite Hicks, taking account of the deficiencies I had found in his work,” Arrow said in a 2007 Bloomberg Radio interview. “Also perhaps to bring it into closer contact with the cyclical business-cycle problems we had just emerged from, which were devastating to the country as a whole and my family in particular.”
That reference was to the Great Depression, which cost Arrow’s father his job.
His doctoral dissertation was published in 1951 as “Social Choice and Individual Value.” Taking issue with Hicks’s assumption that a company can have a single point of view, Arrow explored the effects of divergent opinions among shareholders and how well voting represents the will of the majority.
The dissertation introduced Arrow’s so-called impossibility theorem, which would become a pillar of the economic field known as social choice theory. The theorem holds that no system of voting perfectly reflects the public’s will when three or more candidates are being considered.
Much of Arrow’s work in subsequent years involved how uncertainty affects general equilibrium, or as he put it, “information as an economic variable.”
In a 1963 paper, “Uncertainty and the Welfare Economics of Medical Care,” Arrow looked at how so-called information asymmetry -- when parties to a transaction have different levels of knowledge -- affects medical care. He found that free-market rules don’t apply well to health care, because consumers tend to overstate the quality of medical procedures.
Arrow was an uncle of Lawrence Summers, director of the White House national economic council under President Barack Obama, through Summers’s mother.
Another uncle of Summers, through his father’s side, was Paul Samuelson, the first American to win the Nobel Prize in economics. Arrow was active in how economic theory was applied to current affairs.
He was a leading voice among economists warning about the looming peril of climate change. He submitted a friend-of-the-court brief in 2010 supporting Obama’s health-care overhaul as it was challenged in state courts. In 2006, he signed an endorsement from economists for a boost in the minimum wage.
He was a consultant for the US justice department in its 1995 antitrust settlement with Microsoft Corp.
The New York Times wrote in 1972, “Despite the deep abstraction of his econometric theories, friends consider Professor Arrow basically a humanist, a scholar who has always tried to apply fundamental theory to such social problems as medical care, education, race discrimination and water resources.”
Kenneth Joseph Arrow was born on 23 August 1921, in New York. He majored in mathematics at City College of New York, graduating in 1940, and earned a master’s degree in mathematics from Columbia University in 1941. At Columbia, under the tutelage of Harold Hotelling, a leader in applying math to questions of public welfare and health, Arrow migrated from mathematics to economics.
After serving as a weather officer in the US Army Air Corps during World War II, he returned to his studies at Columbia and was a research associate with the Cowles Commission for research in economics at the University of Chicago. He moved to the Rand Corp., where he was introduced to cutting-edge research based on game theory.
He began teaching economics and statistics at Stanford in 1949 and became a professor of economics, statistics, and operations research. The American Economic Association awarded him its John Bates Clark Medal in 1957.
Arrow moved to Harvard’s economics department in 1968, then returned to Stanford in 1979. He retired in 1991, becoming professor emeritus.
He married the former Selma Schweitzer in 1947. They had two sons, David and Andrew. Bloomberg