Economics and the Nobel Prize

It was given for economics, but it seems more like an award for a branch of mathematics or engineering. I mean this year's Nobel Prize. Two Stanford academics, Paul Milgrom and Robert Wilson, share the award this year. Their topic together is auction theory, a sub-branch of game theory.

Source:https://www.nobelprize.org/alfred-nobel

The study includes formats that can be applied in many economic areas of daily life, but can also be used in other areas with its mathematical abstraction dimension and methodology.

Paul Milgrom and Robert Wilson remind us of John Nash, who won the Nobel Prize for game theory in 1994. Those who are not directly involved in the subject may also remember Nash from the movie Beautiful Mind, starring Russel Crow.

Game theory is used to make decisions in the face of social developments or new social situations that have multivariate nature, to analyze conflicting developments, and to analyze strategies developed based on these. This field of analysis of game theory can find a place in the methodology of many sciences. It is not only related to economics, but it has a wide range of applications in economics.

In a tender, you are giving a price to an uncertainty. You are not sure how accurate the price you are giving is. In other words, you cannot position yourself against other bidders whether the price you are giving in the tender represents the value that the good or service you are bidding for deserves. What is value? One of the most controversial areas of economics is the theory of value. The most hesitant point for bidders is the situation of giving a high price in case of winning the tender. This is called the winner's curse.

The outcome of a tender should benefit the bidder, the bidder and the taxpayer for the goods or services. However, the uncertainty factor plays a large role in this equation. Because, if it is a tender for oil extraction, it may not be known in advance how much of a natural resource the tender is for and therefore what the price of the goods will be as a result of the supply-demand balance. Similarly, if it is a tender for a telecom operator, it will not be known in advance to what extent this service can be used. Therefore, there is a situation where it is extremely difficult to provide mutual benefit for the bidder, the bidder and the taxpayer. Game theory and its sub-branch, bid theory, are trying to develop a model for this difficult equation.

I have never watched a movie because it won an Oscar, nor read a book because it won a Nobel Prize. The reason I am writing this article is because the subject has caught my attention. It is not because I think the work is worthless, but I emphasize that I am not interested in Oscars or Nobels or any other awards. In general, I do not believe in awards at all. I also admire those who reject them. But I am not against documents given as a thank you.

With the Covid-19 crisis, the job of every kind of person you can think of, such as a producer, consumer, politician, healthcare professional, has become very, very difficult. Making decisions and being sure that the decision is correct is always difficult. Possibilities are on one side, constraints are on the other, and you have to make a decision with the logic of optimization under all these possibilities and constraints. The equations presented by the tender theory attracted my attention, especially because they are very relevant to today's very complex world. In addition, mathematical solutions are of particular interest to me.

Let's come to economics and the Nobel Prize. I said I don't believe in awards, but there are very famous economists who oppose giving the Nobel Prize to economics. I agree with them.

The first Nobel Prizes were awarded in 1901. It began with awards in physics, chemistry, medicine, literature and peace. The first Nobel Prize for economics began in 1969.

The Nobel Prize of 1976 goes to Milton Friedman and a big debate starts. The loudest voice comes from another Nobel Prize winner, Gunnar Myrdal. Myrdal sees economics as a "soft" discipline with many political and social variables and describes it as a field with unclear lines and rules. As an academic who received the prize in 1974, he argues that economics should not receive the Nobel. He also emphasizes that he should not have received the Nobel. He also states that he distributed the money that came with the Nobel Prize because he did not need it.

In 1977, a meeting of many economists took place in New York. Myrdal shared his views on the Nobel behind closed doors. The majority agreed with Myrdal, but for a different reason. They thought that he was awarded the prize not for the soft and uncertain aspects of economics, but rather for the mathematical content and quantitative studies, and that the prize did not actually go to economics. Some, on the other hand, said that what part of the peace prize, which has been given since the beginning, is not soft or has certainty?

The first prize in 1969 was awarded to Ragnar Frisch and Jan Tinbergen for their econometric and mathematical work. The 1970 prize was awarded to Paul A. Samuelson for his development of the scientific analysis of economics. The 1971 prize was awarded to Simon Kuznets for his empirical interpretation of economic growth. In 1972, it was Kenneth J. Arrow and John. R. Hicks' turn. They were awarded the Nobel Prize for their contributions to general equilibrium theory and welfare theory. Wassily W. Leontief received the Nobel Prize for his development of the input-output model.

The debate that Myrdal started in 1977 continued for years, but flared up again in 2007.

Rather than whether economics should or should not receive a Nobel Prize, the debates actually stem from economics itself. Economics’ beginning to gain a scientific structure is possible with the intensive inclusion of mathematics. However, the excessive use of mathematics leads to the emergence of views that a social science and a discipline that includes humans cannot be explained with such sophisticated formulas. Sub-branches such as behavioral economics and neuroeconomics are later born. In fact, it explains areas of debate such as autistic economics and post-autistic economics.

Economics receives the award mainly with studies that include econometrics, mathematics and quantitative analysis. This year's Nobel Prize, as I mentioned at the beginning of the article, raises the question "was this award given to economics?" It certainly has something to do with economics, but the underlying study does not actually involve economics.

I have a guess that I have drawn from the discussions that have been going on for decades and from my own readings and the international discussions that I have witnessed. I think that in no other science or discipline has methodology generated as much controversy as in economics. If there is, I do not know of it.

There is no science without knowing philosophy. Without philosophy, no discovery can be made, no new theory can be put forward. In an environment where philosophy is unknown, no method can develop. In a study where there is no philosophy, there is no mathematical abstraction. Without mathematical abstraction, nothing can be concreted. There is a deep philosophy underneath. However, Heidegger calls all Western philosophy groundless. Because, in Greece, "being" was not defined when they started. On the other hand, Robert Heilbroner's magnificent book about the crisis of vision in modern economics comes to mind.

I don't believe in awards, but the fact that the work that is the subject of this year's Nobel Prize caught my attention and triggered discussions of mathematics and methods in economics in my mind made me write this article. Should economics receive the Nobel Prize or not? I don't think it matters. John Kenneth Galbraith didn't receive it either, but John Kenneth Galbraith is John Kenneth Galbraith.

11.10.2020