A Nobel Prize for market devices?

October 17, 2007

Today’s announcement of the Nobel Prize in Economics is interesting news for the social studies of finance. The award given to Leonid Hurwicz, Eric Maskin and Roger Myerson celebrates a line of work, so-called “mechanism design”, that is closely related to the calculative artifacts examined by the sociology and anthropology of finance.

As Peter Boettke writes in the Wall Street Journal, the notion of “mechanism design” explores the problem of when will market calculation work or not work:

Mechanism design theory was established to try to address the main challenge posed by Ludwig von Mises and F.A. Hayek. It all starts with Mr. Hurwicz’s response to Hayek’s famous paper, “The Use of Knowledge in Society.” In the 1930s and ’40s, Hayek was embroiled in the “socialist calculation debate.” (…) Hayek’s argument, a refinement of Mises, basically stated that the economic problem society faced was not how to allocate given resources, but rather how to mobilize and utilize the knowledge dispersed throughout the economy. (…) Leonid Hurwicz, in his classic papers “On the Concept and Possibility of Informational Decentralization” (1969), “On Informationally Decentralized Systems” (1972), and “The Design of Mechanisms for Resource Allocation” (1973), embraced Hayek’s challenge.

Obviously, the laureates’ work is not sociology, and neither does it relate to any tangible or material “mechanism.” In effect, the prize winners differ from the contemporary interest in Knightian uncertainty in the laureates’ emphasis on dispersed information (rather than the more sociological diverse interpretations).

But as much as the two problems are different, their solution — knowledge sharing, communication, debate, social interaction — is similar. For that reason, it is possible to think of the socio-technical artifacts analyzed in SSF (the strawberry market, black-scholes, the spread plot) as “mechanism design”. Conversely, the work of one of the, Roger Myerson, was directly applied to auction design… a topic that has been the subject of a famous controversy in SSF between, on the one hand Callon, Muniesa and (separately) Guala; and, on the other, Mirowski and Nik-Khah. (See the recent book Do Economists Make Markets?)

All in all, not quite a Nobel endorsement of SSF, but encouragement to the study of the social and material black box of market calculation.

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