Leonid Hurwicz's Game

Again, world events dictated his course.

After Pearl Harbor was bombed in December 1941, Hurwicz went to his statistics professor and asked how he could help the war effort. The professor, engaged in research on a brand new invention called radar, brought him onto the project. This led to an appointment with the Institute of Meteorology at the University of Chicago, where Hurwicz taught prospective Army and Navy inductees how to analyze weather data.

At Chicago, he hired, sight unseen, a young teaching assistant from Wisconsin named Evelyn Jensen. They were married in 1944; the first of their four children was born two years later.

Hurwicz had a short academic stint at Iowa State University then at the University of Illinois. But in early 1951, with McCarthyism rampant on college campuses, his politically liberal colleagues in the economics department were targeted, and Hurwicz resigned in protest. Soon afterward, he heard from an Iowa friend who had moved north and thought Hurwicz should consider joining the economics department at the University of Minnesota. Within a couple of months, Hurwicz moved his family to Minneapolis, where he would develop the idea that would win him the Nobel Prize.

“When you talk about the economic process of a society, sometimes we separate it into two stories,” Hurwicz says. “One is about monetary variables. But then, we very often assume the underlying arrangement, the other variable, is ‘perfect competition,’ which means people do whatever they are supposed to do. But actually, there is usually some chapter, not too long, which tells you there are different mechanisms that operate in a particular economy . . . . My question was, What other systems or mechanisms or variables are possible?”

Hurwicz not only pondered the question, but used mathematics to create working economic models. He developed mechanism design to help businesses and other organizations arrive at solutions that combine truthfulness, individual rationality, and social welfare.

Here’s a simplified example from Hurwicz’s work. An old coal-burning energy plant is spewing pollutants. In the not-so-distant past, the response would be for a government regulator to simply demand that the utility reduce emissions or be shut down. But there are problems with this approach. It might not be a simple matter to cut emissions—the cost may be prohibitively high. Or the owner may try to finesse the “game” by hiring an attorney who knows ways to keep the issue bottled up in court. He may also have influence with local legislators, who don’t want to lose the jobs (and electricity) the plant produces.