Nobel is widely known to the popular science audiences as the great chemist discovering dynamite, but also for the (precious) metal ring he wished to have linked him with a certain someone, unfortunately more „chemically" bonded with an illustrious mathematician of the era. This „page three" gossip purportedly links Nobel's decision to „disinherit" mathematicians, by omission, from the prizes granted, by the Nobel foundation since 1901, for the inventions and discoveries most beneficial to humanity. The math curse was though soon to strike back. Since 1969, when it was added to the original five prizes,...
the Nobel Prize for Economic Sciences is, more often than not, granted on... mathematical grounds.10 million Swedish krona, or a little more than a million euro, is the value of the big prize. But cash aside, the far more consequential effect is to consecrate and certify dominant paradigms in science and thought. And more than anything else, the economics prize has subtle consequences on the intentional (re)construction of the „real" world.
Worldly affairs
The history of science, through the latter's representatives, is far from immune to life and bedroom stories. Nevertheless, science is often misunderstood even when we're looking for it in the scientist's library, far from matters of love and honor.
Alfred Nobel's will offers an eclectic and some would say unfair definition of „good" sciences, with both the analytical criterion of beneficial inventions and discoveries and the discrete set of chemistry, physics, medicine, literature and peace. (The opinion that he directed his generosity and his own money to applied sciences as opposed to theoretical disciplines cannot be held as a legitimate basis for public debate, so this shall not be subject for a "public" debate!)
He either thought math to be a sophistical tautology without much practical relevance, or he saw no point in competing with a reputed prize entirely dedicated to it (sponsored by the Crown and supported by Acta Mathematica, then led by Gösta Mittag-Leffler, probably Nobel's romantic rival), no one can tell. It's very much ironic though, and we're getting closer to the prize for Economic Sciences created by the Sveriges Riksbank (The Swedish Central Bank) in 1969, that mathematicians managed to trick the founder's intent, and squeeze through other disciplines - Bertrand Russell for Literature, in 1950, Max Born and Walther Bothe for Physics, four years later.
The Purgatory of Logic and the Hell of Economics
Under disguise as economists, the math wizards kept taking the prize for the last 40 years. As degreed mathematicians, Kenneth Arrow in 1972, Leonid Kantorovich in 1975, John Nash in 1994, Clive Granger in 2003, Robert Aumann and Thomas Schelling in 2005, and Leonid Hurwicz in 2007. And that is without counting the prizes that were awarded to others for mathematical achievement in economics. That the science of economics has been confiscated by the mathematicians, for more than a century now, and performance in economics can no longer come about without mastery in the mathematics, is not much in doubt. But, the consequences of this phenomenon on economic life and the real society are more subtle, and will be the focus here, under the excuse of the 2007 prize.
The Nobel Prize for Economic Sciences was granted in 2007 for the Mechanism Design Theory (definition[i]). The dominant approach in economic sciences implicitly gratifies intellectual endeavors that try to improve on the „imperfect" free market, on the assumptions that self-regulation is idealistic theory and the real market is characterized by less than free competition, consumers less than perfectly informed and production and consumption that, even if individually desirable, generate negative or positive externalities (social costs and benefits), issues that have to be rigourously (=mathematically) managed. It is also more often than not happily claimed that Adam Smith's optimistic model is blemished by the many transactions which don't take place in the open market, but inside organizations, through negotiation between individuals and interest groups under specific institutional arrangements, reasons to rigourously (=mathematically) improve their performances. The relevant research questions thus posited are a) How effective are these institutions / allocation mechanisms? b) What is the optimum mechanism that can achieve a given goal (social welfare, individual profit)? and c) If government intervention through regulation is needed, what is the best way to design it?
The Purgatory of Logic and the Heavens of Politics
These questions are difficult, ever since the making of the world!, because information about individual preferences, utilities and production technologies are distributed among individuals (the socialist planners believed that such complete knowledge can be achieved and used to obtain correct prices without individual transactions for the exchange of goods!!!). These individual information holders have an interest and propensity to withhold this information and use it for their own individual benefit and at the loss of their transaction partners. The theory of mechanism design, started by Leonid Hurwicz and developed by Eric Maskin and Roger Myerson, aims for nothing less than a mathematical model, in the Game Theory family, of the situations described by asymmetrically distributed private information and individuals incentives, a model to provide a system design for optimal (for whom, in the name of Lord, since optimality is, in the end, as subjective as love to each human person?) outcomes from economic transactions. Thus, the direct consequence - a potential argument for the presence of an external institutional arbiter: the State.
Critics have already claimed that even if such thinking, applied to small contexts, reduced with a set of standard assumptions (and a very strict set of outcome maximizing behaviors), is valid, it risks to overlook exactly the impossibility of observing and normalizing human behavior. As such, trying to use the theory to distinguish between optimal and sub-optimal arrangements is arbitrary. In other words, the forced sophistication of mechanisms governing auctions, regulation schemes or voting procedures, which are all direct practical applications of the theory, are logically impeccable games... for androids. The relevance for improving business and political systems is still hard to prove, and the endeavor looks more like an attempt to imagine how to properly do centralized planning. Can it be that mathematics is the `almost last` swan song of economic socialisms?
The Nobel Prize, Economics and the judgement of the included third party
In a conversation with Cosmin Marinescu, professor at Academia de Studii Economice, about the reasons for validating intellectual experiments in economic sciences through academic consensus, a poor susbtitute for common sense theory, the main problem was identified to be the faulty background/context legitimizing today's research in economics. In this entire puzzle, the fame of Nobel Prize winners is not to be glorified without "granno salis".
„Unfortunately, the relativist world of the 20th century appears, especially in academia, as an unsubstantiated intellectual relativism sapping the virtues of science, redefined as correct knowledge. Mistaking Relativity Theory for Relative Theory, under the umbrella of an average `middle of the road` truth, led also to a relativization of truth and justice. Hence, a decrease in the honest interest for principled arguments for, or against, ideas and policies. For example, in the cruelest irony of scientific relativism in modern society, the fiercely liberal economist Friedrich von Hayek shared his Nobel prize in 1974 with Gunnar Myrdal, a famous advocate for state intervention. Centuries of rational thought and systematic logic in the service of truth were forgotten in the political instant of a common prize for two life-time ideological enemies. Just like the morbid speeches of political parties claiming to serve the national interest with sophisticated number-based policies and recipes, „just" diametrically opposed. This is the paradox where scientifically empty words, such as the „national interest", end up in hiding, more often than not, „national" political felonies".
As Cosmin Marinescu concludes, „No matter the strength of free-market arguments, political power is and will remain the hidden temptation for worldwide relativists. The siren song of the political system, offering security for just a little of individual freedom, is always strong, no matter the historical precedent, even if, as the 20th century confirmed, the experiment of a „rationally planned" society ends with losing both freedom and security".[i] In economics and game theory, mechanism design is the study of designing rules of a game or system to achieve a specific outcome, even though each agent may be self-interested. This is done by setting up a structure in which agents have an incentive to behave according to the rules. The resulting mechanism is then said to implement the desired outcome. The strength of such a result depends on the solution concept used in the rules. It is related to metagame analysis, which uses the techniques of game theory to develop rules for a game (Wikipedia).