U.S. Trio Wins Nobel Economics Prize
By VINNEE TONG 10.15.07, 3:29 PM ET
Three U.S. economists, one of them a 90-year-old professor emeritus from Minnesota, will share this year's Nobel prize in economics for their work on how people's knowledge and self-interest affect their behavior in the market or in social situations such as voting and labor negotiations.
Leonid Hurwicz, who lives in south Minneapolis, is the oldest winner ever of the Nobel, the Royal Swedish Academy of Sciences said in their announcement on Monday.
His work - along with that of Eric S. Maskin and Roger B. Myerson, who both are 56 - led to a theory that plays a wide-ranging role in contemporary economics and political science, touching on areas as diverse as labor contract negotiations, auctions of government bonds, voting procedures and the structuring of insurance policies.
In its citation, the academy said that their work on "mechanism design theory" has made it possible to "distinguish situations in which markets work well from those in which they do not." This, it added, helped economists identify efficient trading mechanisms, regulatory schemes and voting procedures.
They will share a $1.5 million prize, to be awarded in December.
Hurwicz, who is an emeritus economics professor at the University of Minnesota in Minneapolis, started work on this area in 1960.
"I really didn't expect it," the Moscow-born researcher said of the Nobel announcement. In fact Hurwicz, who is hard of hearing, said he initially thought the call from Sweden about the prize was a hoax.
"There were times when other people said I was on the short list, but as time passed and nothing happened I didn't expect the recognition would come because people who were familiar with my work were slowly dying off," he said.
Maskin is a professor at the Institute for Advanced Study at Princeton, N.J., and Myerson is a professor at the University of Chicago in Illinois. Maskin and Myerson both finished their Ph.Ds at Harvard University in 1976.
Maskin said he was relieved Hurwicz was among the winners.
"Many of us had hoped for many years that he would win," Maskin told reporters in Stockholm in a conference call. "He is 90 years old now, and we thought time was running out. It is a tremendous honor to have the opportunity to share the prize with him and with Roger Myerson."
Maskin said he received the unexpected call at his Princeton home - a house once occupied by physicist Albert Einstein - early Monday, then headed to his office.
"There are so many people who could win," Maskin said. "It's like winning the lottery basically."
Myerson, who has been at University of Chicago since 2001, becomes the 24th professor, researcher or student with ties to the school to win the Nobel in economics, according to the university. He earlier had been at Northwestern University in nearby Evanston.
Myerson said he had been inspired by the work of his fellow laureates and described his work as investigating "how does information get used in society to allocate resources."
Essentially, the three men studied how game theory can help determine the best, most efficient method for decision-making.
Game theory was advanced by John Nash, the subject of the film "A Beautiful Mind" and who received the prize in 1994.
Stephen Morris, an economics professor at Princeton University, said a big part of why the winners were chosen was their proof of how people deciding as a group can lead to a best outcome for many transactions, whether it's in a marketplace or in the political arena.
He added that he thought the academy's choice would be popular among economists, saying: "I think it was seen as inevitable that this work should be recognized somehow."
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.
Myerson explored the concept in detail in his work, "Game Theory: Analysis of Conflict," and built a mathematical model that analyzed elections. Myerson has even extended his work to examining how best to rebuild a government in Iraq.
"Chances for successful democracy may depend critically on introducing the right kind of transitional structures," he wrote in a May 2003 editorial titled, "How to build democracy in Iraq."
Maskin, meanwhile, was cited for his work on determining what kinds of auctions, or selling procedures, could bring in the most revenue to sellers.
Americans have dominated the economics prize in recent years. The last non-American to win the prize was Canada's Robert A. Mundell in 1999.
Last year American Edmund S. Phelps won the prize for explaining the relationship between inflation and unemployment, work that has had a profound impact on macroeconomic policy.
The award, known officially as the Nobel Memorial Prize in Economic Sciences, is not one of the original Nobel Prizes, which were established in the will made by Alfred Nobel more than 100 years ago. Nobel invented dynamite.
The economics prize was created in 1968 by the Swedish central bank in Nobel's memory. The award will be presented by the Swedish king on Dec. 10.
Associated Press writers Matt Moore, Karl Ritter, Malin Rising and Louise Nordstrom (nyse: JWN - news - people ) in Stockholm; Jeff Baenen in Minneapolis; Michael Tarm in Chicago; and Geoff Mulvihill and Mike Derer in Princeton contributed to this report.
Copyright 2007 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed
'); //--> News Headlines | More From Forbes.com | Special Reports