Leonid Hurwicz explained


In addition to honoring the world’s most brilliant people, Nobel Prize season also has the remarkable ability to make people wish they’d paid more attention in school.

Today, Minnesota’s Leonid Hurwicz received his prize in economics.

Minnesota Public Radio’s Art Hughes said Hurwicz’s son, Maxim, “simplified his father’s notable economic theory, which includes people he called ‘interveners,’ who act altruistically instead of in their own self-interest.”

“He did not invent interveners, because interveners are real people. But as an economist he has discovered them and given them a name. He has created a space for them in economics. A little bright spot in a normally gray landscape,” said Maxim Hurwicz.

Come again?

Hurwicz received the award “for having laid the foundations of mechanism design theory.” Here’s the scientific explanation, but read it only if you paid attention in school.

Now, here’s the explanation for those of us who didn’t:

Take games with a desired outcome. The people playing the games are a wild card — they want different things. So the game’s desired outcome is achieved by giving the players incentive to act in a certain way. In a popular online game, a player can be convinced to head a certain way by giving him/her points for killing a dragon guarding a door, for example. In those games, though, the goal is to have one winner. While giving someone a reason to act a certain way to achieve a desired outcome is part of mechanism design theory, having a single winner at the end of the game is not.

Taking that a bit further, Reason Magazine, uses the example of two children squabbling over how to divide a pie.

Parents will already know one answer—one child cuts and the second child chooses. The second child will choose the larger half which gives the first child the incentive to cut as evenly as possible. The first-cut, second-choose solution is a simple example of an incentive-compatible mechanism.

Hurwicz applied his theory in economics in the ’60s in the critical debate of the time, according to the economic commentary site, Vox. Which is better: capitalism or socialism?

His results did not, however, let Capitalism off lightly, because individual incentives are not always aligned with social incentives. It did, however, help governments think about how best to regulate a capitalist economy.

In economics, and perhaps in the group meeting you’ve recently had, there are “players” with different agendas. Hurwicz’s work, at least in theory, provides a way to allocate scare resources — the pie in the above example — in a way that will achieve a desired outcome, be it happy people, developed nations, housing, whatever.

The importance to the world of having its disparate factions (game players) solve the problem of allocating scarce resources is obviously a big deal. The fact that Hurwicz came up with a theory that shows us exactly how that can happen is why he’s a big deal, too.

  • “Come again?” is a pretty vague comment on what I said. Either you didn’t hear me, or this is a veiled criticism. So thoroughly veiled I can’t even respond.

    If anyone is interested, the transcript of the entire speech is here. It’s actually pretty short.

    The point isn’t that anything which you have written after the excerpt of my speech (above) is right or wrong, my father would be best at that sort of analysis, but rather that it is incomplete.

    The funny part, to me, is that people tend to view others as if they were all motivated as they are. To project, so to speak, themselves onto everyone else. Those who lack altruism personally tend to see self-interest in everything. And thus people choose the theories which fulfill what they already perceive. Like a color-blind person denying the existence of color.

    Oh well, I’m in a rush and must be off, so I don’t have time to proof what I’ve just written here, but regardless, debating this is pointless…is that funny? It makes me smile!

  • Bob Collins

    Please don’t misinterpret the fact it’s taken many tries to understand the fundamental concepts of your father’s terrific work, as criticism of your attempt (and all I had to go on was the quote that Art provided, I’m anxious to read your entire explanation) to make people like me understand it.

    The fact that I, for example, get glassy eyed when people try to explain concepts like this is, as I tried to say, apparently clumsily, is a reflection on my ability to understand. My teachers have always made cogent explanations, only to turn from the blackboard, see my frustrated expression and hear the words “come again? I still don’t get it.” Eventually they gave up.

    If I understand your father’s work — however incomplete my understanding — is that it provides a mechanism or framework — does it not — for a desired outcome among “players,” whether they are altruistic or not.

    I don’t pretend to be in any intellectual universe to debate the theory. I’m still trying to understand it.

  • Marj Wyatt

    Having known Leo Hurwicz personally, as a friend and more, it seems to me that distracting attention from his well deserved recognition by engaging in a debate about the interpretation of or criticism about words spoken by witnesses to his accomplishments have potential for diminishing returns.

    This is about Leo, a remarkable man, whose life’s work has been recognized while he still walks the face of this planet, gratefully. Well done, Leo!

  • Bob Collins

    Explaining the the theory for which Mr Hurwicz won a well-deserved award should not be considered distracting, nor should it be considered debate (at least from the perspective of *my* intent.) I hope the last paragraph of the original post makes that clear. Mr. Hurwicz is is a big deal.

  • Thanks for your reply. I appreciate your ambiguity-reduction efforts. In my rush yesterday it hadn’t occurred to me that “Come again?” might indicate a lack of understanding. I had one other thought what “Come again?” might mean, but this is is a family show, yes?

    I can empathize with your experience of explanations of economic theory, as I have sometimes felt that some attempts at clarification were akin to sanding glass to clean it. My personal tendency is to try to bring everyday imagery into things, which does run the risk of over-simplification.

    Last night I had a conversation with Leo which still makes me smile, as it dove-tails with the very quote you chose to highlight. Things have been so hectic lately, that it was the first time we had had a chance to reflect on the speech. Leo said that the line “He did not invent interveners, because interveners are real people.” was his favorite part of the speech. Isn’t that a happy little coincidence? It pleased me because, for me, he was the most important listener to the tribute. He vets descriptions like a watch-maker examining a clock’s workings through a loupe. If there was even one jewel in the mechanism of my speech in his eyes, that was enough for me.

    And I would like to emphasize I wasn’t in any way critiquing your explanation of his theories. Regardless of how they might survive his analysis (which he hasn’t made), I appreciate your attempt to make them accessible to “the masses”, of whom I count myself one.

    The main point I was trying to make in my speech, aside from it being a tribute to my dad, was that there is a bigger picture than people simply being motivated by self interest, even if that is what may be the usual case. If one does not see that there are people who not only are not motivated by self interest, but are acting in what may be (though not necessarily) dictated by their personal sense of integrity, then one misses something important. In my eyes, and in a very simplified plea, it shows that those who act in their own self-interest need coordinating, while interveners need nurturing, support and protection. If one treats both types as being the same, something precious can be missed and lost. The most glaring example is how whistle-blowers need at the very least, protection, and at the most, rewards.

    I am smiling while personally reflecting (Leo has not said this) on how one person’s intervener may be another person’s nut-case, but that story will have to wait for another bedtime.

  • Bob Collins

    Many, many thanks, Mr. Hurwicz, for stopping in and sharing.

    Now, let me ask you something I always ask people I interview or talk with.

    What’s the most insightful and helpful piece of advice your dad ever gave you?