AUCTION HOUSES MIGHT BE MORE INFLUENTIAL THAN DYNAMITE.

Boston Globe columnist David Warsh comments on the recent tendency of economics Nobels to have more than a little bit to do with the everyday business of humanity.  Mr Warsh's site uses a form of archiving and indexing that I have not yet mastered, and I'm going to quote extensively and hope for the best.

A handful of developments in research economics in the early 1980s created sufficient excitement to attract the attention of journalists. As the saying goes, there were sovereigns in the air.

Paul Krugman edited a conference volume on strategic trade policy built around new ideas about economies of scale. Thomas Sargent, in “The Ends of Four Big Inflations,” suggested that the Federal Reserve Board’s battle against inflation might be less costly than was commonly thought. Paul Romer began investigating the logic of policies that might stimulate economic growth. Fynn Kydland and Edward Prescott, having already reformulated the terms by which central banking was understood, set out in “Time to Build and Aggregate Fluctuations,” to identify the driving forces behind business cycles.

And in 1982, an eight-page paper contributed by four economists who shared Stanford University connections appeared in The Journal of Economic Theory, “Rational Cooperation in the Finitely Repeated Prisoners’ Dilemma.” Interest in the evolution of cooperation had recently been stimulated by an influential paper by political scientist Robert Axelrod. The authors were concerned with the machinery by which reputations were built and preserved (or not!), Having submitted to the journal rival papers setting out ideas about the analysis of what soon would become known as sequential equilibrium, involving the application of Bayes’ rule, they were persuaded by the editor, Karl Shell, to prepare a short introduction setting out their common ground. They were quickly dubbed the Gang of Four.

The rational cooperation paper might have illustrated one of the occasionally troubling tendencies in economics, namely a lot of carefully constructed theory to the effect that such behavior was irrational, although it kept showing up in experimental settings and in real life.  Sooner or later, logic and content will win the day.

In the aftermath of last week, there was a widespread sense of jubilation. David Kreps, Wilson’s co-author on the Gang of Four, (“Reputation and Imperfect Information”), who continues to work on the wellsprings of cooperation, said Wilson’s impact on the discipline “puts him in the company of giants such as Ken Arrow and Paul Samuelson:  he is, as much as anyone, the founder of the School of Economic Theory as Engineering.” Wilson and Milgrom, along with laureates Jennifer Doudna (chemistry), and Reinhard Gentzel and Andre Ghez (both physics), will stream their lectures in December from the Swedish consulate in San Francisco.

It's more likely that economic theory as (social?) engineering will run up, sooner or later, against the propensity of complex adaptive systems to do what they d**n well please.  A better understanding of auctions, however, is useful knowledge to have.