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Kenneth Arrow
American Economist

Kenneth Arrow quotes

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The purpose of organizations is to exploit the fact that many (virtually all) decisions require the participation of many individuals for their effectiveness.

Even Ricardo's most famous accomplishment, the law of comparative advantage in foreign trade, is incomplete, though not wrong.

From the point of view of seeking a consensus of the moral imperative of individuals, such consensus being assumed to exist, the problem of choosing an electoral or other choice mechanism, or, more broadly, of choosing a social structure, assumes an entirely different form from that discussed in the greater part of this study.

The formal structure of a decision problem in any area can be put into four parts: (1) the choice of an objective function denning the relative desirability of different outcomes; (2) specification of the policy alternatives which are available to the agent, or decisionmaker, (3) specification of the model, that is, empirical relations that link the objective function, or the variables that enter into it, with the policy alternatives and possibly other variables; and (4) computational methods for choosing among the policy alternatives that one which performs best as measured by the objective function.

L. Walras first formulated the state of the economic system at any point of time as the solution of a system of simultaneous equations representing the demand for goods by consumers, the supply of goods by producers and the equilibrium condition that supply equal demand on every market.

As is by now well known, attempts to form social judgments by aggregating individual expressed preferences always lead to the possibility of paradox.

Uncertainty means that we do not have a complete description of the world which we fully believe to be true.

I was a very polite person, though. Paul Samuelson tells these stories how he used to correct his professors. I assume that's true. But I wasn't that type.

Alchian: Perhaps it might have been more appropriate for the Nobel Prize to have gone to you and Hicks together, and [Kenneth] Arrow and [Gunnar] Myrdal together.
Hayek: Oh, surely. [laughter]

Studying oneself is not the most comfortable of enterprises. One is caught between the desire to show oneself in the best possible light and the fear of claiming more than one's due.

The general uncertainty about the prospects of medical treatment is socially handled by rigid entry requirements. These are designed to reduce the uncertainty in the mind of the consumer as to the quality insofar as this is possible. I think this explanation, which is perhaps the naive one, is much more tenable than any idea of a monopoly seeking to increase incomes.

I then follow up with four major aspects of economic research in the last 60 years, the period of my scholarly activity. One, econometric methodology and practice, is of such fundamental importance that it cannotgo unnoticed, although I played no role in it. With the other three, general equilibrium, dynamic processes, and uncertainty and information, I was more intimately involved.

I am old-fashioned enough to retain David Hume's view that one can never derive ought propositions from is propositions. The two issues, method and value, are distinct.

Not only is it possible to devise complete models of the economy on hypotheses other than rationality, but in fact virtually every practical theory of macroeconomics is partly so based. The price- and wage- rigidity elements of Keynesian theory are hard to fit into a rational framework, though some valiant efforts have been made. … But if the Keynesian model is a natural target of criticism by the upholders of universal rationality, it must be added that monetarism is no better. I know of no serious derivation of the demand for money from a rational optimization. … The use of rationality in these arguments is ritualistic, not essential.

We will also assume in the present study that individual values are taken as data and are not capable of being altered by the nature of the decision process itself

Decision theory, as it has grown up in recent years, is a formalization of the problems involved in making optimal choices. In a certain sense — a very abstract sense, to be sure — it incorporates among others operations research, theoretical economics, and wide areas of statistics, among others.

In eras when authority or at least specific authorities have been questioned, there is more tendency to examine the roots of and the need for authority. The owl of Minerva flies not in the dusk but in the storm.

The choice among these alternatives in any given case depends on the degree of difficulty consumers have in making the choice unaided, and on the consequences of errors of judgment. It its the general social consensus, clearly, that the laissez-faire solution for medicine is intolerable. The certification proposal never seems to have been discussed seriously.

Perhaps as important is the relation between the existence of solutions to a competitive equilibrium and the problems of normative or welfare economics.

The idealist doctrine then may be summed up by saying that each individual has two orderings, one which governs him in his everyday actions, and one which would be relevant under some ideal conditions and which is in some sense truer than the first ordering. It is the latter which is considered relevant to social choice, and it is assumed that there is complete unanimity with regard to the truer individual ordering.

Trust is an important lubricant of a social system. It is extremely efficient; it saves a lot of trouble to have a fair degree of reliance on other people's word. Unfortunately this is not a commodity which can be bought very easily. If you have to buy it, you already have some doubts about what you have bought.

I was early regarded as having unusual intellectual capacity. I was an omnivorous reader, and I added to that a desire to systematize my understanding. As a result, history, for example, was not merely a set of dates and colorful stories; I could understand it as a sequence in which one event flowed out of another. This sense of order crystallized during my high-school and college years into a predominant interest in mathematics and mathematical logic.

Krugman's whole attack is directed at a statement made neither by Arthur nor by Cassidy. Krugman has not read Cassidy's piece with any care nor has he bothered to review what Arthur has in fact said.

There are many other organizations beside the government and the firm. But all of them, whether political party or revolutionary movement, university or church, share the common characteristics of the need for collective action and the allocation of resources through nonmarket methods.

It's true that my initial training was in mathematics. However, almost by accident, I happened to take a course from Kenneth Arrow on Information Economics, which was so inspiring that I decided to change direction. It seemed to me that economics combined the best of both worlds: the rigor of mathematics with the immediate relevance of a social science. As for how much math I would recommend, I'd say that basic analysis, including measure theory, is certainly very useful. Also, linear algebra and stochastic processes always helps. But beyond that, I don't think a huge mathematical investment is necessary to do economic theory unless you are planning to work in an extremely technical area.