Who is Kenneth Arrow?
Kenneth Arrow (1921-2017) was an American neoclassical economist who won the Nobel Prize in Economics along with John Hicks in 1972 for his contributions to general equilibrium analysis and welfare economics.
Arrow’s research has also explored social choice theory, endogenous growth theory, collective decision making, the information economy, and the economics of racial discrimination, among other topics.
- Kenneth Arrow was a neoclassical economist known for his far-reaching contributions to microeconomic and macroeconomic theory.
- Arrow was awarded the Nobel Prize in 1972 for his work in general equilibrium and welfare economics.
- Arrow’s main contributions to economic theory include advances in social choice theory, most notably Arrow’s impossibility theorem.
Understanding Kenneth Arrow
Born in New York City in 1921, Kenneth Arrow taught at Stanford University, Harvard, and the University of Chicago. He obtained his Ph.D. from Columbia University, with a dissertation that discussed his theorem called the General Impossibility Theorem. Arrow determined in this theorem that the results could not be decided fairly during an election. That’s because, he claimed, ideal voting methods didn’t exist when there are more than two candidates trying to meet certain criteria.
Arrow described the criteria as follows:
- no dictatorship: One person shouldn’t be the deciding factor. This means that everyone’s wishes must be considered.
- Individual sovereignty: Voters should be able to order their elections in any way they choose. They should also be able to score if they feel undecided or if there is a tie.
- Unanimity: If each individual prefers one candidate over another, then the group ranking should do the same.
- Freedom and independence from irrelevant alternatives: If one option is removed, the results of the others should not change. So if the first candidate is leading and the third candidate retires, the first candidate should still be ahead of the second.
- Group rank uniqueness: Regardless of preferences, the result should be the same.
The application of Arrow’s general impossibility theorem has gone beyond democracy and electoral results. It has also been used for both welfare economics and (social) justice. It has also been related to the liberal paradox, which was developed by the economist Amartya Sen. According to Sen and his paradox, there is generally a conflict between the distribution of goods and services in a society and individual freedom in the sense that both they cannot exist at the same time. Same time.
Arrow later published a book on the same subject. Arrow is also known as one of the first economists to recognize the so-called learning curve.
Kenneth Arrow legacy
The importance of Arrow’s theoretical vision has proven its importance over the decades, but he argued that his conclusions about the functioning of competitive markets were only true under ideal, that is, unrealistic assumptions. For example, their assumptions ruled out the existence of third-party effects. An example of such an effect would be the idea that selling Harry’s product to Joe would not affect Sally’s well-being. However, this assumption is routinely violated in the real world by selling products that harm the environment, for example.
Arrow’s later research translated simple ideas into elegant mathematics, which other economists expanded in unexpected directions. One of those notions was “learning by doing,” an idea Arrow examined in the early 1960s. The basic idea was that the more a company produced, the smarter it became. Decades later, economists incorporated this idea into sophisticated “endogenous growth” theories, which assert that economic growth depends on internal company policies that promote innovation and education.
Kenneth Arrow died on February 21, 2017.