Text of talk at lunch honoring the 2001 Economics Nobel Laureates
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1Text of talk at ASSA January 2003 lunch honoring the 2001 Economics Nobel Laureates George Akerlof, Michael Spence, and Joseph Stiglitz Revised January 6 to conform to material actually delivered Avinash Dixit, Princeton University Let me begin by thanking Peter Diamond for inviting me to give this talk. This was a wonderful opportunity for me to think back to my graduate school days at MIT in the mid and late 1960s. George Akerlof and Joe Stiglitz were in the cohort of graduate students two to three years ahead of me. This group also included Bob Gordon, Bob Hall, Bill Nordhaus, Eytan Sheshinski, Richard Sutch, Marty Weitzman, ... I can’t recite the whole list because it would take too long and leave no time for Joe to speak.1 Mike Rothschild was my contemporary; after us came Robert Merton, Bob Shiller, Alan Blinder, Stan Fischer, ... and so on. Remembering all this made me realize how lucky I was to have this company, and how lucky we all were to have as our teachers Paul Samuelson, Bob Solow, Ken Arrow who visited for a year, Frank Fisher, Peter Diamond who joined the faculty in 1966 ... again to mention just a few. Even in this company of students, George and Joe stood out. George was always recognized as having the most unusual - and beautiful - mind in this group of students. He thought about even the most ordinary problems in uncommon ways, and he posed questions that no one else would. And just when you were thinking that only a damn fool would ask a question like that, he produced a beautiful answer that changed your perspective. Besides the lemons paper for which he has been honored, he has modeled a rat race, a very early model of excessive costly signaling. He has enriched macroeconomics using micro and information perspectives and vice versa, and has brought insights from psychology and sociology to shed new light on economic issues. I want to stress that the combination of daring questions and beautiful answers is what makes George the successful contrarian he is. We have no shortage of economists who are always complaining that the mainstream of the profession is going in the wrong direction or is ignoring the really big questions. But they never make any positive contributions to improving the state of the subject. George asks the big questions and delivers some answers, thereby pointing us in the right direction. If we had been a high school class, Joe Stiglitz would have been the unanimous choice for “the boy most likely to succeed”. There was no Nobel Prize in Economics when we were graduate students, but had there been one, Joe would have been thought a sure future bet even then. Of course he started out with the great advantage of coming from Gary, Indiana.2 To this he added a great intellect and a capacity for hard work. You don’t need me to tell you how smart he is. What you may not know is how hard he worked. The rumors that he actually lived in his office in the department or in the library are probably untrue. But many of us remember finding him there at 4 or 5 a.m., snatching a couple of hours of sleep in some corner, or on a desk, or sometimes, under a desk. Thomas Edison is supposed to have said that genius is 1 percent inspiration and 99 percent perspiration. Yogi Berra would put the percentages at 75 each. Whatever the right mix, Joe had plenty of both. Young economists who think they are so smart that they don’t need to work hard should learn from Joe’s example that talent and effort are complements, not substitutes. Mike Spence was not an MIT graduate student – unfortunately for us, and perhaps also for him. When I was a graduate student he was already on his downward path – from being an undergraduate at Princeton, to a Rhodes Scholarship at Oxford, and finally graduate school at a place up the river, Harvard. In fact we are lucky that he became an economist at all. At one time he had thought of being a professional hockey player. He changed his mind when he found out that professional hockey players lost all their teeth by the time they were 30. Then he decided to become Prime Minister of Canada, but was stopped by the inconvenient fact that he was born in New Jersey. So we should thank hockey players’ habit of fighting, and the parochial nature of Canadian politics, for sparing Mike for Economics. Reading his paper on job market signaling was one of the biggest “wow moments” for me, as I am sure it was for many of you. The work pioneered by these three has become so thoroughly absorbed into our thinking that we may forget just how much of a difference they made. Younger economists who went to graduate school in the last two decades have no knowledge of the state of the subject before them. To remind ourselves, and to give the young some historical perspective, I went back to two textbooks - Henderson and Quandt, published in 1958, and Arrow and Hahn, published in 1970. I want to emphasize that I do not mean to imply anything bad about these books. Rather the opposite. They were excellent expositions of the state of the art in their day, and I learned a lot from both. I want to point out what the state of the art was before the information revolution, and they are the best representation of that. Here is what they said about uncertainty, incentives etc. Henderson and Quandt have five pages on basic expected utility theory, nothing else. Arrow and Hahn have more, as one would expect; after all, Arrow pioneered the theory of general equilibrium under uncertainty, and introduced the concepts of moral hazard and adverse selection to economics. The Arrow-Hahn book has a section stating how the general model can be reinterpreted to allow state-contingent commodities. Then it frankly admits the limitations of this analysis: “An individual who knows that information will become available to part of the market, but not to him, will be unable to enter into conditional contracts. ... A particular case of failures of markets to exist because of inequalities in information structure is the so-called moral hazard ... An equilibrium can be shown to exist, but it will certainly not have the Pareto-efficiency properties of the pure model.” Some general statements about why full insurance will not be available in these circumstances. And that is all. Contrast this with recent textbooks such as Kreps and MasColell-Whinston-Green. Both have full chapters on each of the following topics: choice under uncertainty, moral hazard, adverse selection, and mechanism design. And several other chapters in both, particularly ones on game theory, are closely connected with and dependent on ideas of asymmetric information. Almost 25% of each of these two books directly treats issues and applications asymmetric information theory, and another 25% is heavily influenced by those ideas. Thirty years ago we lacked the very notion of signaling, let alone the more precise concept of the differential cost of signaling for different types that leads to an equilibrium where signals separate the types. The ideas have spread beyond economics, and are threatening to take over political science and biology - Spence is becoming one of the most cited authors in evolutionary biology. Even beyond academics, our thinking and language about an amazingly broad range of phenomena has been altered by the scientific revolution these three launched. We see and interpret signals in everyday actions of others. Take this lunch as an example. I am sure you did not come here for the food. Although its quality was a pleasant surprise, I am sure your expectation was what is usual on such occasions – rubber chicken in flour sauce, and overcooked peas. Therefore your willingness to suffer the food, and actually pay for it, becomes an effective or credible signal of your regard for our three honorees. So, for changing 50 percent of our textbooks, and quite as much of our everyday thinking, let us thank, and give a toast to, the three Nobelists – George Akerlof, Michael Spence, and Joseph Stiglitz. APPENDIX – List of Economics graduate students entering MIT during the years 1962-1967
Please send any corrections to Peter Hoagland (Admissions Assistant), pvhoag@mit.edu )
1 1 This written version gives me the chance to append the full list. 2 2 The younger generation (including many in the audience) seemed unaware of the special role that Gary, Indiana occupies in Economics: Paul Samuelson was also born there. Yüklə 114,5 Kb. Dostları ilə paylaş:
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