Leonid Hurwicz, a professor emeritus of economics at the University, said he thought the 6 a.m. phone call Monday was a stupid joke when his wife told him he won the Nobel Prize, in a video released by the University.
“It turned out after a while that there was these other telephone (calls) that came in, so I realized it was not a joke,” he said.
Along with two other Americans, Hurwicz won the Nobel Memorial Prize in Economic Sciences Monday “for having laid the foundations of mechanism design theory,” according to the Nobel Foundation’s Web site.
In the video, he said he was surprised at the news because he thought the younger generation didn’t know about the origins of the ideas of his theory.
Hurwicz was awarded the prize along with Eric Maskin from Princeton University and Roger Myerson from the University of Chicago. Hurwicz, 90, the oldest winner of the Nobel Prize, initiated the mechanism design theory in 1960, which was further developed by Maskin and Myerson in the late ’70s, according to the Nobel Web site.
In a statement released Monday morning, University President Bob Bruininks praised Hurwicz’s work.
“Professor Hurwicz has been one of the most outstanding economists in the entire world,” he said. “He has influenced, in a very significant and transformative way, the study of economics and the application of economics to important issues on an international scale.”
The theory developed by the three men allows the ability to distinguish “situations in which markets work well from those in which they do not,” according to the Nobel Web site.
V.V. Chari, an economics professor at the University who has known Hurwicz for 25 years, said mechanism design theory has changed the kinds of tools and language that economists use to address problems.
“It has had a pervasive influence on every area of economics,” he said. “Now we think about solving a mechanism design problem rather than solving an allocation problem.”
Applied to real-life situations, part of the theory creates incentives for individuals to work together within markets to allocate resources.
If two people are splitting a pie, for instance, one person will choose what half they want and the other will cut the pie, said Alexander Tabarrok, an associate economics professor at George Mason University.
“They know that the second person will cut it in half,” he said. “That’s a simple example of creating a mechanism to solve a problem.”
The theory has reverberated throughout government policy, from how to run cell phone bandwidth auctions to looking at poverty in Africa in terms of the theory, Chari said.
“The main thing it does is it points the finger at central planning,” Chari said. “It explains why so many things set up in central planning weren’t working.”
Hurwicz joins a line of prestigious Nobel Prize winners with a University connection. The list, now 20 people long, includes Norman Borlaug, the “father” of the green revolution, and Milton Friedman, a prominent economist who taught at the University from 1945-46.
Hurwicz joined the University in 1951 as an economics and mathematics professor. Hurwicz was born in Moscow in 1917 and raised in Poland. He came to the United States in 1940.
Hurwicz retired from the University as a full-time professor in 1988 and taught a graduate economic course in the fall of last year as an emeritus professor.
Daniel McFadden, director of the University of California-Berkeley’s Econometrics Laboratory and fellow winner of the Nobel Prize in 2000, took a graduate course at the University under Hurwicz when he initiated mechanism design theory.
Hurwicz’s theory influenced McFadden’s work both directly and indirectly, McFadden said.
“(The theory) was clearly an exciting breakthrough at the time,” he said. “You learned hands-on with him; certainly the best teacher I’ve ever encountered.”
This year’s laureates will receive a gold medal, a diploma and $1.53 million, to be shared among them, the Agence France-Presse reported.
The Nobel Memorial Prize in Economic Sciences was not one of the five prizes that Alfred Nobel originally established in his will. Rather, the Central Bank of Sweden established the prize as a memorial of Nobel in 1968.
The formal prize ceremony will be held in Stockholm, Sweden on Dec. 10, the anniversary of Nobel’s death in 1896.
-Vadim Lavrusik and the Agence France-Presse contributed to this report.