Shortly after being awakened and learning the news, Lloyd Shapley, one of two Americans who were awarded the Nobel economics prize, talks to a reporter from his home in the Pacific Palisades area of Los Angeles. A giant of "game theory," Shapley, retired from UCLA, shared the prices with Al Roth, who's coming to Stanford from Harvard.
Harvard Business School Professor Alvin Roth, now a visiting professor at Stanford University, and UCLA mathematician-economist Lloyd Shapley have been awarded the 2012 Nobel Prize for Economics (which isn't exactly like other Nobel Prizes; being awarded only since 1969).
They didn't really work together but developed complementary insights into something called "game theory" and its real-world applications.
Q: What is game theory?
A: Game theory is a branch of mathematics that was developed by ultra-super-mega genius John von Neumann. It concerns, in a vulgar nutshell, decision-making in a competitive framework. Ever heard of a "zero-sum game?" That's game theory — two players, one total winner and one total loser, as in a chess match. The math is 1 + -1 = 0, hence a "zero-sum game," with one point up for grabs. The dynamics of this type of reasoning were immediately attractive to Cold War strategists, who had to figure out how to "win" a nuclear war. Shapley, 89, is at UCLA now but based on a statement that the university released, is retired. He spent nearly 30 years at the RAND Corp. in Santa Monica, which was the global epicenter of game theory as a geopolitical discipline. Ever seen the movie "War Games?" It's the most famous example ever of (simplified) game theory in pop culture:
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Could an economist from the University of Southern California win the Nobel Prize in Economics? Not last year, but maybe this. Maybe.
The Nobel Prize in Economics will be announced on Monday. Some predictions can be found here — and they include Robert Shiller, who will be well known to readers of the DeBord report for developing, with fellow economist Karl Case, the Case-Shiller home price index, which comes out every month and tracks home prices in 20 U.S. cities. Shiller would be a commendable winner, but...
Last year, I posted on the lead-up to the Economics prize, suggesting that maybe, perhaps, a worthy winner would be Southern California's own Richard Easterlin. Easterlin has since cropped up several more times in this blog (he's always gracious with his time and generous with his insights), and it would be false of me to suggest that, in good hometown fashion, I'm not rooting for the father of happiness economics, still working away at USC, to nab some of that Swedish hardware.
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Paul Krugman isn't happy about how economists handled the financial crisis.
Just catching up with this. It's the text of Paul Krugman's speech upon receiving some honorary degrees in Spain. It's well worth a full read. There's some wonky econo-speak, but Krugman's labors as a New York Times op-ed columnist have enabled him to convey some complex ideas with admirable clarity.
Quick summary: the economists failed when the financial crisis hit. When the economy isn't in crisis, economists are basically useless. But when it all goes to hell, they're urgently needed and must to be ready to offer the best possible advice.
Krugman thinks he and his fellow economists blew it, mainly because they descended into ideological and intellectual squabbling after the initial, successful response to the crisis was mustered.
He starts by blaming himself. This small portion of the speech, to me, explains a lot about how even a public intellectual/academic economist like Krugman could be blindsided: