By Douglas Clement
While creating mechanism design theory, the late Leo Hurwicz was also transforming the economics department
In December 2007 Leo Hurwicz received the Nobel Memorial Prize in Economic Sciences. This long overdue honor recognized his pioneering work in mechanism design theory, "the art of producing institutions," said the Nobel committee, "that align individual incentives with overall social goals."
Mechanism design was a major breakthrough that allowed economists to solve long-standing theoretical questions such as why markets alone can't solve global public goods problems, and to address numerous pragmatic issues including suboptimal auction outcomes, inadequate voting procedures, and inefficient matching patterns. "It's had a big theory effect and also a great many practical, everyday effects," notes Professor V. V. Chari.
Less recognized, perhaps, is the fact that at the same time Hurwicz was developing his theory, he was also applying it. Through intellectual leadership and by dint of personality, he helped produce an institution that brilliantly aligned individual incentives with social goals: the University of Minnesota's economics department.
The inside manHurwicz was one of the department's central figures since his arrival in 1951. Walter Heller was a vital force in rebuilding the faculty and burnishing the department's public image, but as professor emeritus Herb Mohring explains, "Walter was the outside man, and Leo was the inside man." Mohring, who joined the department in 1961, notes that "during my first 20 or so years, Leo was the dominant personality ... . He was not out to dominate the department. He just did it because of who he is."
"I'm not sure how well understood it is," says University of Chicago economist Robert Townsend, a graduate student in the early 1970s, "but Leo was the -- I don't want it to be pejorative -- but the godfather. He was the one everyone looked up to, and not just the students. This includes the faculty."
That respect derived in part from his dedication to rigorous clarity. The early '70s saw the birth of rational expectations at the U, and Tom Sargent and Neil Wallace "were youngsters writing about ineffective monetary policy," says Townsend. And though such work was only distantly related to Hurwicz's research, "they were always asking themselves, 'How would Leo approach this problem? What would he have to say about it?' There was a lot of influence in terms of method, the rigorous treatment, the mathematics, the clarity. That's a huge part of Minnesota, and Leo had an enormous amount to do with that."
Faculty and students alike were affected by Hurwicz's approach. "Young faculty members, myself included, were extraordinarily influenced by him," noted Professor Ket Richter, "His research methods were logical and rigorous ... . Leo was very influential in training graduate students over many decades, instilling in them an appreciation of high-quality serious theoretical work. No sloppiness. No vague notions. He was rather painstaking in working with students until they got it right, and students learned from that."
Inspiring confidenceJim Guzy, 1957 graduate who majored in statistics and learned econometrics from Hurwicz recalls how well Hurwicz perceived, and taught to, his students' capabilities: "He was someone who sensed his audience of students and had the ability to move at a pace they understood," Guzy says. "He had awareness. Good professors make good students, and you need people up there in front who can get through to the students. You can't just stand there and have the title. You've got to have the skill. And Leo did."
Guzy did well in econometrics and went on to study advanced statistics at Stanford. For the next four decades, "I was in the computer and semiconductor business," he says modestly. Guzy was a cofounder of Intel, president of SRC Computers, and a director of Cirrus Logic, among other high-tech companies. And Hurwicz, he says, was instrumental in his success.
When Guzy decided to go to graduate school, Hurwicz wrote him a letter of recommendation to Stanford, where Hurwicz had a joint appointment. "He was the only guy that I had write a letter, and his reputation was such that it was persuasive," Guzy says.
Hurwicz's influence extended beyond the letter. "At that stage in a student's life, taking courses and doing well instills tremendous confidence that you can go further and higher," says Guzy. "There's no question that Leo gave me confidence to go on to graduate school and to take challenges on up."
Warmth and humorHurwicz was more than a towering intellect and an inspiring teacher. His personal warmth and sense of humor shatter the stereotype of dismal scientist, and that personality helped shape interaction among economics faculty members that continues to this day. In contrast to the competitive sniping that went on elsewhere, recalls Mohring, "going to lunch with the Minnesota economics department was warm and congenial, largely because of Leo."
Competition existed, but of a different sort. "The only contest with some frequency was whether anyone could tell a funnier story about the stupid thing he did yesterday," Mohring says, "and Leo was by far the best raconteur of stupid-things-I-did-yesterday stories. His intellect and personality simply dominated the department, in the best possible way."
"A lot of conversations with Leo took place in strange circumstances," Townsend recalls. The slow Heller Hall elevators required long waits in the lobby, "and occasionally you were lucky and Leo would be there waiting, and you could have a key conversation about a personal thing, like the attitude you should have as an assistant professor going to work someplace else." Finding him in his office could be difficult, but "if you did, he would give you all the time you needed, and it was great."
Overdue recognitionTownsend speaks for many when he says "this prize he got was a long time coming. It should have been many, many years ago." When the Nobel committee granted the overdue honor, it did not require the 90-year-old Hurwicz to fly to Europe to receive it. Instead, the Swedish ambassador to the United States brought the gold medallion directly to Minnesota.
While the Nobel Prize lauded Hurwicz's theoretical innovation, his real-world transformation of the economics department is also of note. By instilling confidence, building congenial rapport, and insisting on quality, Hurwicz created tacit rules of interaction. Those rules aligned the individual incentives of students and faculty members with the broader goal of building the department's reputation.
Over recent years, colleagues and students have begun to repay this generosity. In October 2007, gifts came in from friends, colleagues, and alumni around the world when the Leo Hurwicz Fellowship was created. In 2006 the Econometric Society honored him with the Leo Hurwicz lecture, delivered by Roger Myerson, who would share the 2007 Nobel Prize. In April 2007, university presidents, Nobel laureates, members of congress and fellow economists gathered from around the world to thank him for his contributions. Hundreds more joined the December 10 campus celebration when Hurwicz received his Nobel medallion.
Hurwicz is at last being acknowledged for half a century of gifts to economics, to students and colleagues, and to his community. Those gifts will continue to shape our lives for years to come. "Mechanism design has fundamentally changed the way I think about economics," says David Levine, a Washington University economic theorist who taught at the Minnesota in the late 1980s. "And, personally, Leo was a tremendously good influence. I can't say I've always lived up to his good example, but at least I have him to inspire me."
As do we all.