Oct. 15, 2007: 90-year-old U prof felt Nobel call was a joke

The two economists who will share a Nobel Prize in economics with Leonid Hurwicz were both 9 years old when the University of Minnesota professor emeritus first proposed his big ideas.

Eisenhower was president when Hurwicz started thinking deeply about some of the great problems of economics, such as how to promote rational decision making in a world where information may be as unequally distributed as wealth.

On Monday, the 90-year-old Hurwicz became the oldest-ever Nobel Prize winner. Few of his early colleagues are around to toast his award.

"They're slowly dying out," he said. "Many of my students are now retired."

But the generations of economists that followed have taken the lessons of the old professor and expanded them to all manner of practical applications.

Over the past 50 years, Hurwicz's ideas have influenced everything from a strategy for reducing acid rain to the allocation of cell phone licenses and the way DFL party caucuses are run.

Hurwicz will share the $1.53 million prize with two of those theorists who built on his work -- Princeton University economist Eric Maskin, 56, and Roger Myerson, a 56-year-old University of Chicago economist.

"It's taken for granted that graduate students will learn it in their microeconomics classes," economist Dick Todd, a onetime student of Hurwicz, said of the professor's work. "It's a fundamental tool that's used across the profession."

Carrying U tradition

Hurwicz becomes the fifth Nobel Prize winner in economics with links to the University of Minnesota. Edward Prescott, a former economist who continues to do research at the Federal Reserve Bank of Minneapolis, won in 2004. Daniel McFadden, who won in 2000, studied physics at the U and said Hurwicz was one of the economists who attracted him to the study of human behavior.

Hurwicz was born in Moscow of Polish parents who fled the fighting of World War I, but his early education was in Poland. He earned a law degree in 1938 from the University of Warsaw and briefly was a student at the London School of Economics.

He came to the United States in 1940 and the next year became a research assistant to Paul Samuelson, an MIT economist who later won his own Nobel Prize. After teaching posts in Illinois and Iowa, Hurwicz came to the U of M in 1951 to teach economics and statistics. After a stint at Stanford, he returned to the U as chairman of the statistics department in 1961. Eight years later, he was named a Regents' Professor of Economics. He retired from the faculty 20 years ago.

An eclectic scholar, Hurwicz took an interest in topics ranging from language to meteorology.

U economist V.V. Chari recalled that when they first met, Hurwicz offered insights into the origins of words and dialects of Tamil, a language spoken in Chari's native India.

Chari was surprised to hear such insight from a Russian-born Polish Jew.

"I have spoken the language ever since I was an infant," Chari said. "He explained all the details I was never aware of."

Hurwicz said Monday he did not believe the news of his Nobel when he heard it.

"The first thing I thought was that it was a joke," Hurwicz said. "Considering that it was 6 in the morning, not a very good joke."

Those in his field said the recognition is well-deserved.

"This was a prize that was long overdue," said Narayana Kocherlakota, chair of the U of M economics department.

"He did seminal, foundational work that many people built on. It was great to see it finally acknowledged and recognized."

More than a half-century ago, Hurwicz began examining markets with a highly theoretical, mathematical approach, seeking to ask questions about what works and what doesn't in the real world.

While they carried esoteric labels such as "mechanism design" and "incentive compatibility," the great insight of Hurwicz's theories was readily understandable -- markets work most efficiently when the incentives of the players, and the rule-makers, are in harmony.

That's harder to achieve in practice because sometimes in a transaction one set of people have much more information than the other. Hurwicz asked if ways could be found to tease out information that some parties would rather keep private.

Working in the real world

A practical application of Hurwicz's work can be seen in the auctions of public broadcast rights.

The government once routinely granted radio and television licenses without regard to which applicants might be the most efficient, Chari said.

Hurwicz's work suggested alternative strategies might reveal the best applicants. That idea, Chari said, led to government auctions for cell phone frequencies. By definition, the companies that put up the most money have an incentive to use the frequencies most effectively, and taxpayers reap the gain from higher auction prices.

"In 1950, we would have either handed it over to private individuals or had government running that system," Chari said.

The lessons of Hurwicz's work also led to the auctions that allow polluters to buy and sell credits for the right to emit sulphur dioxide into the atmosphere. The system has led to a reduction in acid rain.

A longtime DFL activist, Hurwicz went to the 1968 Democratic convention in Chicago as a supporter of Eugene McCarthy. His side lost, and he later lobbied for an end to winner-take-all conventions for nominations in Minnesota.

"He helped design a revision in the caucus system to make it more democratic," said Vernon Ruttan, a longtime U of M economist.

Ruttan and others said Hurwicz had an appreciation for simplicity in reviewing the work of colleagues, as well. He recalled a seminar, years ago, when economists presented the findings of an elaborate computer model.

Everyone was impressed until Hurwicz went to the blackboard and wrote two brief formulas. "This is what I think you mean," he said. With a few strokes of chalk, Ruttan said, Hurwicz made weeks of computer work seem superfluous.

Or, as Hurwicz said Monday, economic theory is more about thought than how much technology can be aimed at a problem.

"The answer won't come out mechanically from the rear of a computer," he said.

Mike Meyers • 612-673-1746

Mike Meyers • meyers@startribune.com