kenneth arrow

"Economics graduate programs may be turning out a generation with too many idiot savants skilled in technique but innocent of real economic issues."

This was one of the conclusions of the American Economic Association’s Commission on Graduate Education in Economics, formed in 1991, chaired by Anne Krueger and included Kenneth Arrow, Robert Lucas, Joseph Stiglitz, Lawrence Summers and Edward Leamer. (open access to their report)
The members of commission affirmed “that it is an underemphasis on the ‘linkages’ between tools, both theory and econometrics, and ‘real world problems’ that is the weakness of graduate education in economics,” and that both students and faculty sensed “the absence of facts, institutional information, data, real-world issues, applications, and policy problems.” 
"A core curriculum that lacks breadth or balance", as the commision observed and warned, "will create an excessively narrow image of what it means to be an economist".
These resonant findings about economics studies and economics’ professional portrait were presented back in 1991- in the dawn of the Neoliberal Globalism era. The “neo-classical” hegemony was then so complete that even the commission simply did not recognize that economic theories other than neoclassical economic theory existed.
Well, now in 2014 (as much as 1994 and 2004, btw) we have all saw and experienced the practical implications of economists’ “empty formalism”, as the commision put it.
I don’t find it consoling that the commission’s general conclusions were so accurate. But I do believe that if something hard to be changed from the inside, it can be tackled from the outside. Determined outsiders can be of great assistance to brave insiders calling for change. Economics will not change without substantive challenges, as well as daily prods and nudges, from economic sociologists and political economists. 

(open access to the report)

[Kenneth] Arrow was able to prove—with the inexorable force of pure mathematics—that the only way to satisfy all of the requirements [of democracy] is to select one voter and give him all the votes. The only “democratic” procedure that meets the minimal requirements for democracy is to anoint a dictator.
—  Steven E. Landsburg, The Armchair Economist 
Axiomatization may also give ready answers to new questions when a novel interpretation of primitive concepts is discovered. As an illustration, consider the concept of a commodity, which had meant traditionally a good or a service whose physical properties and whose delivery date and location are specified. In the case of an uncertain environment, Arrow (1953) added to those characteristics of a commodity the event in which delivery will take place. In this manner one obtains, without any change in the form of the model, a theory of uncertainty in which all the results of the theory of certainty are available (Debreu [1959], Chapter 7).
—  Debreu - “Economic Theory in the Mathematical Mode,” p. 98

It was on this day in 1901 that the first Nobel Prizes were awarded. As the ceremony is being held in Oslo, Norway today we remember past winners. Professor Kenneth Arrow, winner of the 1972 Nobel Prize in Economics, sits alongside his children David, 10 (L), Andrew, 7, and his wife, Selma, after their arrival from the U.S. 12/5. The Nobel Prize ceremony was held in Stockholm on December 10, 1972.

  • Listen
Play

Skeptoid host Brian Dunning took a look at the dilemma of voting between more than two choices. He listened to Kenneth Arrow for advise in comparing different voting systems. His takeaway? Don’t use Plurality or ranked voting systems. Dunning took the smart route in the end and went with Approval Voting—no vote splitting and always choose your honest favorite. Not a bad deal.

The 1951 Arrow-Debreu treatment relies on the fact that Pareto optimal allocations lead to two sets being disjoint. If these sets are convex,⁶⁵ one appeals to the geometric insight that they can be separated by a line.⁶⁶ Thus, convexity assumptions have to be made on the basic data of the economy, namely on preferences and on technologies, and they ensure that the functional-analytic argument can be sustained. The content of the theorem can now be given an alternative form. Corresponding to every Pareto optimal allocation, there exists a system of prices—the separating line so to speak—such that decentralized self-interested decisions of consumers and producers lead to that allocation being sustained. Since such decisions imply that every agent equate his or her marginal rates to this price, the previous results discussed by Samuelson-Graaff seem to be contained in this reformulation. The rates, if they exist, can be equalized but they are no longer the issue; the fact that desirable outcomes can be sustained as individual maximizing behavior is the crucial insight. Convexity takes the center stage.
— 

Khan - “The Irony in/of Economic Theory,” p. 780

⁶⁵: A set is convex if the line joining any two points chosen from the set also lies in the set. Thus a crescent is not a convex set whereas a disc is. See Rockafeller (1970) for details.

⁶⁶: This is nothing more profound than saying that one set lies on one side of the line and the other set lies on the other side of the line; see Rockafellar (1970) for details. Of course, with sufficient generality, the statement constitutes the geometric version of the fundamental Hahn-Banach theorem of functional analysis.

Statement on Prediction Markets by Kenneth J. Arrow, Shyam Sunder, Robert Forsythe, Robert E. Litan, Eric Zitzewitz, Michael Gorham, Robert W. Hahn, Robin Hanson, Daniel Kahneman, John O. Ledyard, ...
See on Scoop.it - Bounded Rationality and Beyond


Prediction markets are markets for contracts that yield payments based on the outcome of an uncertain future event, such as a presidential election. Using these markets as forecasting tools could substantially improve decision making in the private and public sectors. 

We argue that U.S. regulators should lower barriers to the creation and design of prediction markets by creating a safe harbor for certain types of small stakes markets. We believe our proposed change has the potential to stimulate innovation in the design and use of prediction markets throughout the economy, and in the process to provide information that will benefit the private sector and government alike. 


See on papers.ssrn.com
Adictos a la mentira o a la seguridad (¿acaso no es lo mismo?)

El economista Kenneth Arrow, ganador de un premio Nobel, trabajaba durante la II Guerra Mundial como estadístico en la oficina meteorológica del Ejército de EE.UU. Un día, mientras analizaba las previsiones del tiempo, pensó: “Siempre se equivocan. ¿Para qué hacerlas?”. Decidió escribir una carta a sus superiores en la que decía que se invertía mucho dinero en esas previsiones y que no merecía la pena. La respuesta que recibió fue la siguiente: “Todos sabemos que las previsiones se equivocan, pero nos ayudan a planificar”. Es increíble ese sesgo del comportamiento humano, pero lo cierto es que aunque creamos que las previsiones que se utilizan son erróneas, nos dan sensación de seguridad.