U of M economist wins Nobel Prize
Leonid Hurwicz, 90, an emeritus professor of economics at the U of M, shares the prize with two other economists for developing a theory that helps explain situations in which markets work and others in which they don't.
Stockholm, Sweden — (AP) - 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, according to the academy. "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 decision-making 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 negotiations over labor issues to the auctioning of government bonds and has helped countries and companies better understand how markets function even when conditions are rocky.
Hurwicz said Monday he was surprised to have won the award.
"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, 56, is professor at the Institute for Advanced Study at Princeton, New Jersey; 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 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 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 told The Associated Press, categorizing his work as investigating "How does information get used in society to allocate resources."
The award, known as the Nobel Memorial Prize in Economic Sciences, is not one of the original Nobel Prizes. It was created in 1968 by the Swedish central bank in Nobel's memory. The winners share a $1.5 million prize.
The trio's work is used to help companies, even countries, understand the alternatives to traditional markets.
"There are applications to almost all areas," Per Krusell, a member of the Nobel Committee for Economics at the academy, told Sweden's TV4. "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 that 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.
Game theory was advanced by John Nash, the subject of the film "A Beautiful Mind" and who received the prize in 1994.
The topic has drawn interest from the academy before, most recently in 2005 when Thomas Schelling and Robert Aumann won the economics prize for putting game theory to the test in politics.
Myerson explored the concept in detail in his work, "Game Theory: Analysis of Conflict," and even built a mathematical model that analyzed elections.
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.
(Copyright 2007 by The Associated Press. All Rights Reserved.)