Kenneth Arrow facts for kids
Quick facts for kids
Kenneth Arrow
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Arrow in 1996
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Kenneth Joseph Arrow
23 August 1921 New York City, U.S.
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| Died | 21 February 2017 (aged 95) Palo Alto, California, U.S.
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| Institution | Stanford University |
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Neoclassical economics |
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Harold Hotelling |
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Kenneth Joseph Arrow (born August 23, 1921 – died February 21, 2017) was an American economist and mathematician. He was also a writer and a thinker about how societies make decisions. In 1972, he won the Nobel Memorial Prize in Economic Sciences along with another economist, John Hicks.
Arrow was a very important person in economics after World War II. He helped shape a way of thinking called neo-classical economic theory, which looks at how people and businesses make choices. Many of his students later became famous economists and even won the Nobel Prize themselves! His most famous ideas include "Arrow's impossibility theorem" and his work on how markets reach a balance, known as general equilibrium. He also did important work on how economies grow and how information affects markets.
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Early Life and Education
Kenneth Arrow was born in New York City on August 23, 1921. His parents were from Romania and were very supportive of his education. He grew up during the Great Depression, a time when many people struggled financially. This experience made him interested in how society works and how to make things fairer.
He went to Townsend Harris High School and then studied mathematics at the City College of New York, graduating in 1940. He continued his studies at Columbia University, where he earned a master's degree in mathematics in 1941. While at Columbia, his teacher, Harold Hotelling, encouraged him to study economics. From 1942 to 1946, Arrow served in the United States Army Air Forces as a weather officer during World War II.
Academic Journey
After the war, from 1946 to 1949, Arrow worked as a student and researcher at the University of Chicago. He also worked at the RAND Corporation in California, a place that does research for the government. Later, he joined Stanford University as a professor. In 1951, he finished his PhD from Columbia University.
In the 1960s, he worked for the U.S. government, advising on economic matters. In 1968, he moved to Harvard University as a professor. It was during his time at Harvard that he received the Nobel Prize in Economics.
Arrow returned to Stanford in 1979 and taught there until he retired in 1991. He was also a founding member of the Pontifical Academy of Social Sciences, a group that advises the Pope on social issues. He helped start the Annual Review of Economics, a journal that publishes important economic research.
Four of his former students, John Harsanyi, Eric Maskin, Roger Myerson, and Michael Spence, went on to win the Nobel Prize. This shows how much he influenced future economists.
Arrow's Impossibility Theorem
One of Kenneth Arrow's most famous ideas is called "Arrow's impossibility theorem". He wrote about it in his book Social Choice and Individual Values, which came from his PhD work.
Imagine a group of people trying to make a decision, like choosing a class president. Everyone has their own favorite candidate. Arrow's theorem basically says that it's impossible to create a perfect voting system that always makes fair decisions for the whole group, while also meeting a few simple, fair rules.
These rules include:
- No Dictator: One person's choice shouldn't automatically become the group's choice.
- Individual Freedom: Everyone should be able to rank their choices however they want.
- Agreement: If everyone prefers one choice over another, the group should too.
- Fair Comparison: If you remove one choice, it shouldn't change how the remaining choices are ranked against each other.
- Clear Result: The system should always give a clear and consistent group ranking.
Arrow showed that no voting system can satisfy all these fair rules at the same time. This idea is very important for understanding how groups make decisions, whether it's in politics or economics.
General Equilibrium Theory
Kenneth Arrow also did important work on something called general equilibrium theory. This theory tries to understand how all the different parts of an economy fit together and reach a balance. Think of it like a giant puzzle where supply and demand for all goods and services in an economy are connected.
Arrow, along with another economist named Gérard Debreu, proved that it's possible for all markets in an economy to reach a balance at the same time. This means that at certain prices, everyone who wants to buy something can find it, and everyone who wants to sell something can sell it. This idea was influenced by Adam Smith's idea of the "invisible hand" from his book The Wealth of Nations, which suggests that individual actions can lead to a balanced economy.
How Economies Grow
Arrow was also a pioneer in thinking about endogenous growth theory. This theory tries to explain why economies grow and get better over time. Before this theory, many economists thought that new ideas and technology just appeared out of nowhere.
Arrow suggested that economic growth isn't just random. Instead, he showed that businesses and people learn and improve as they produce things. He called this "learning-by-doing". This means that innovation and new technologies are actually a part of economic activity, not something separate. His ideas helped other economists, like Paul Romer, develop this theory further.
Information in Markets
Another area Arrow explored was how information affects markets. Sometimes, one person in a deal knows more than the other. For example, a car seller knows more about a used car's condition than the buyer. This difference in information can cause problems.
Arrow studied how this "asymmetric information" can lead to unfair deals or even stop markets from working well. He looked at this problem in medical care, showing why things like warranties and third-party checks are important to help people trust each other in transactions. His work helped economists understand how markets adapt to these information differences.
Awards and Honors
Kenneth Arrow received many awards for his groundbreaking work. In 1957, he was given the John Bates Clark Medal, which is a major award for young American economists.
In 1972, he won the Nobel Prize in Economics, one of the highest honors in the field. He also received the von Neumann Theory Prize in 1986 and the National Medal of Science in 2004, which is the highest scientific honor in the United States. President George W. Bush presented him with this award for his research on decision-making and risk.
He also received honorary degrees from many universities around the world, including the University of Chicago and Uppsala University in Sweden. In 2006, he was elected a Foreign Member of the Royal Society, a very old and respected scientific group in the UK.
Personal Life
Kenneth Arrow was married to Selma Schweitzer, who was also an economist and psychotherapist. They had two children, David Michael and Andrew Seth.
He was known for being incredibly smart and knowledgeable about many different subjects, not just economics. People would sometimes try to test his knowledge on obscure topics, but he often knew more than them!
Kenneth Arrow passed away at his home in Palo Alto, California, on February 21, 2017, at the age of 95. His ideas continue to influence how economists and decision-makers think about the world.
See also
- Arrow information paradox
- List of economists
- List of Jewish Nobel laureates
