Nobet Prize Winners
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NOBETPRIZE WINNERS basicview in Alfred Nobel'swill 1.997-200LSupplement rnal perspectiveto the benefit of ; be awardedfor literary or scien- ved in practicewhile at the same ing rule was insertedin the regu- refer to works during the preced- nomic theory. He received his B.A' from for the most recentachievements Yale in 1.96t, and earned a Ph.D. in 1966 until recently." The discoveryof from the MassachusettsInstitute of Technol- until 1945when the drug'svalue ogy, in Cambridge. After graduation he ac- iterary contributionsmay not be .6ittta an assistantprofessorship at the Uni- of work. Therefore,many laure- veisity of California at Berkeley. From 1'967 to fg6g he served as a visiting professor at n arousescontroversy is self-evi- the Indian Statistical Institute, in Calcutta, ce prizesmust also be admitted. India, and in 1969 he was a research asso- ter. It is, however,surprising that ciate at Harvard University, in Cambridge, n written about the Nobel Prizes Massachusetts.In 1970 he became an asso- ciate professor at BerkeleY. aThe 'LemorIS'," zesin otherfields. The reasonis In Market for Akerlof's in the gratedbe takeninto account. The groundbreaking PaPeI published isteredby the foundation. None- of Econoyics (197o), he Quarterly lour:nai "information-asym- leningframeworks.' In 1973,far d-evelopedthe notion of cov eries concerning or ganization metrv.; It tht market for used cars, the po- ,ioneeringresearch in radio astro- tential buyer has less information than the very of cosmicmicrowave back- seller about the quality of the car. The buygl: oterpretationof the prize field. forced to make inferences about the car, will nska Institute.I servedas a mem- naturally be suspicious of its quality^,and ac- later secretary-generalof the offer a low and Itg Skorpinksi/Courtesy of the LLlirtorsitv''rl Calif<rrnia Borkelev cordingiy will only be willin-g-to rart in the Nobel work in physics, priceJeven if he or she would be willing tg -fir.e-yearperiod, I saw firsthand u higher price for a car that was in good George A. buu ed their delicatemission and wit- , loiraitio.t. tliis results in adverse selection, fiudi cating the prize proposals. where only the poor-quality cars come on 1940- Nobel Prize ked by representativesof organi- 17, ) for the market, since the owners of cars that are (shared with A. Michael romenew internationalprize was wrics, 2001 in good condition will choose to-keep their ine the topics carefully so that a and loseph E, Stiglitz) cari rather than sell them at such low prices' is to make a selection,even in a Under these circumstances, the quality of A. Akerlof was ion process.Third, ask for suffi- economist George available products is lowered for everyone 'l'g4} Con- involve a greatmany specialists on ]une L7, in New Haven, involved, and owners retain cars that they in Lectingthe Nobel laureatesand of t. He attended Yale UniversitY should have been able to sell. The asymmet- iame as that of the Nobel Prizes Haven. Having grown up in the shadow rical nature of information prevents deals l GreatDepression, he wanted to under- that would benefit both buyers and sellers' xtige. It is frequentlywondered the root causes of poverty-an interest In the same paper Akerlof discussed an award. One reasonmay be that drew him to the studY of economics. example that wai based on his studies of e principal historical transforma- always been interested in why people credif markets in India in the 1960s, where very beginning,the international poor," he told a writer for the Be*eley rural moneylenders charged interest rates : strict rules of the selectionpro- ipus News (October 10, 2001, on-line). that were twice as high as the rates in the cit- in establishingthe importanceof economics is about is trying to pre- ies. Akerlof explained that a middleman ;k of selectingof the next year's poverty insofar as that is possible." who borrows money in cities and lends it in ' of the world's intellectualsare lof cited in particular his interest in the rural areas-without knowledge of the bor- re importanceof the work that is omic disparity between blacks and rowers' ability to repay-is induced to raise rf mankind." es. which he feels is one of the most im- interest rates to cover the risks of lending to t issues in America, yet one that is in- those who may default. Akerlof's analysis market, iently addressedby contemporary eco- also applies io the health-care AKERLOF where individuals seeking insurance cover- a researchproject examining the effects age know more about their health than in- an individual's sense of self on econ surance companies do. Insurance providers, outcomes. In such areasas gender discr accordingly, are compelled to raise rates to nation, the economics of poverty, and the avoid the possible losses that would be in- vision of labor, Akerlof and Kranton curred by insuring too many high-risk cus- that including factors of personal and soci tomers. By doing so, however, the compa- identity significantly alters the conclusiot nies may discourage the healthy-and there- of traditional economic analysis. As a part fore desirable-potential customers from their work they examined how group i purchasing their services. ty among black children in inner Akerlofs focus on market imperfections schools affected emPloYment Pros presented a bold break from mainstream They argued that some schools in economic thought, which held that in un- neighborhoods have succeeded in im regulated markets the agreed-upon price ing student performance by altering conce1> must be the right price. The traditional view tions of identity, and therefore expectations- that competition and rational behavior lead They cited the Central Park East Secolduty "equilibrium," to market Akerlof argued, School, in the Harlem neighborhood of New had presupposed that both buyers and sell- York City, as an example. Mainstream ec(> ers were fully informed. By incorporating nomic ttreory, which maintains that training the effects of inforrnational inequalities in and education are the determining factors in market transactions, it becomes possible to a child's success,fails to acknowledge the explain the existence of certain institutions role that identity plays in shaping students' that aim to correct the market. Used-car de- successand job prosPects. alerships, for example, can be seen as at- Akerlof has become well known for his tempting to bridge the informational gap by practice of incorporating the perspectives of a posi- iocial sciences other than economics in his offering guarantees and establishing "An tive reputation with consumers. Other insti- work. In a paper titled Economic Theo- tutions that the theory seems to explain in- rist's Bookbf tales" (1984),as quoted in the brand names, chain stores,franchises, Berkeley Campus News, he explained that clude "economic and different types of contracts. Akerlof's theorists, like French chefs in re- fellow economics laureates, A.MIcHAEL sPENCE gard to food, have developed stylized mod- and losrpHsrIGLIrz, developed theories to ac- els whose ingredients are limited by some count for the various ways institutions unwritten rules. Just as traditional French adapt to the information inequality. Spe_nce cooking does not use seaweedor raw fish, so "signaling" introduced the idea of to explain neoclassical models do not make assump- how participants in a market transaction use tions derived from psychology, anthropolo- observable practices to convey the value or gy, or sociology. I disagree with aly rules quality of their products. Spence looked at fhat limit the nature of the ingredients in education, for example, as a signal to poten- economic models." Henry Aaron, a senior tial employers of productivity. Stiglitz in- fellow at the Brookings Institution, told a vestigated the "screening" processesadopt- writer for the Berkeley Campus News that "more ed by insurance companies to gather infor- than any other person in economics, mation about their customers. lAkerlofl has worked to show how the in- In'1.977Akerlof became a fulI professor at sight from sociology and psychology could- the University of California at Berkeley. In brioaden, enrich and increase the power of that same year he met his wife, Janet YeIIen, economics. He is, in my opinion, perhaps iir Washington D.C. Yellen was an econo- the most imaginative and creative applier of mist for the Federal Reserve Board at the insights from other disciplines." time, where Akerlof was a visiting research- In a statement posted on the Nobel e- Yellen Museum Web site, the Nobel committee er. They were married in July 1'978. "the became the head of the Board of Governors praised Akerlof's paper as single most of the Federal Reserve System in the mid- important study in the literature on econom- 1990s and served as the chair of the Council icJof information. It has the typical features of Economic Advisers from 1"997to 1999. of a trulv seminal contribution-it addresses Akerlof recently collaborated with Rachel a simpl-e-numerous but profound and universal idea, E. Kranton, a professor of economics at the with implications and wide- University of Maryland in College Park, on spread applications." 2 Nobel Prize Winners ATFEROV in has received manv honors and cal University) and received his degree ct examining the effects of scien- He is the recipient of a Guggenheim 1952. Later hb earned two additional sense of self on economic p and Fulbright FellowshiP.He_is tific degrees, both from the loffe-Physico- ;h areas as gender discrimi- of the Econometric SocietY, the Technical Institute: a candidate of sciences rmics of povertY,and the di- Academv of Arts and Sciences, in technology in 1961 and a doctor of sci- Akerlof and Kranton argued Institute for Policv Reform. He is ences in physics and mathematics in 1970' ctors of personal and social president of the American Economic Since rgS-3,Alferov has been a staff mem- antlv alters the conclusions fratiott and a senior adviser for the ber of the Ioffe Institute, where he has held rnomic analYsis.As a Part of Panel on Economic ActivitY.