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A beautiful piece of Economics got Nobel!

Yi-Cheng Zhang

posted on 01 October 2001

Last week Bank of Sweden awarded the Nobel Memorial Prize in Economics
to three economists George Akerlof et al.. While in the past the economics prizes are hardly intelligeable
to the outsiders of the profession, the work started by George Akerlof
is so simple and beautiful as well as practical that I cannot
recommend too highly for physicists to have a look. The mechanism's
simplicity and elegance could be compared with that in physics like
Goldstone bosons, Spontaneous symmetry breaking etc. In contrast to the
axioms-laden economics literature Akerlof's paper ("The Market of 'lemons'") is only a few pages
long, with almost high school level algebra, using plain language and a
minimalist model, demonstrated a point about the information asymmetry
that its consequences are still to be spelt out even today.

The references are not hard to find (best is Akerlof's book "A
theorist's Tale"). I randomly selected one paper from the press (LA
Times since it gave a fuller account) that can give you some idea about
the trio's work. Why not Akerlof himself? While, think that if Ken
Wilson were to share his Nobel with two others, for politically correct
decisions. But my vote definitely goes to Akerlof, who had to fight this
paper during four years and after many modified versions before it
finally got accepted. Four years is a long wait, even considering the
lengthy publication standards in economics. It says something about the
resistance of the profession towards those who break rank with the
orthodox equilibrium economics and who present new ideas. Another
economist friendly with physicists, Brian Arthur with an important work
on "Increasing Returns" had to endure seven years of rebutal, before he
is widely acclaimed for his contribution. We physicists are not used to
this kind of "torture" and maybe for this reason most of us choose not
to submit papers to economics journals---if tenured economics professors
(Both Akerlof and Arthur were then professors at top US schools) with
their Nobel-winning work (wait for Brian's Bang) had such hard time,
what chance we outsiders stand with that profession's journals? But time
is changing for the better, as our community gets larger and more vocal,
our own publications like Physica A are now widely read, even economists
don't publicly endorse it.

Last but not the least, our team at Fribourg has been working on
information-asymmetry related research since a couple of years now,
Akerlof's paper was among the required reading when new members joined
us. There are still many unexpected beautiful areas worthy exploring.
Stay tuned.

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