The current issue of the journal Œconomia. is devoted to The Computerization of Economics. Computers, Programming, and the Internet in the History of Economics
It includes this surprisingly grumpy-sounding take on market design, particularly on its intersection with game theory:
Nik-Khah, Edward. "The Closed Market: Platform Design and the Computerization of Economics." Œconomia. History, Methodology, Philosophy 13-3 (2023): 877-905.
Here's a paragraph that caught my eye:
"In his book Who Gets What—And Why, the market designer Alvin Roth pronounced firms such as Google, Amazon, and Uber to be “markets,” proclaiming, “Successful designs depend greatly on the details of the market, including the culture and psychology of the participants” (Roth, 2015). One need not actually find an example of an economist counseling advisees to skip that additional course in game theory and take up cultural anthropology to arrive at the sense that matters had taken a surprising turn: only a decade before one regularly encountered brash claims that all social science worth its salt must be reducible to game theory, with market design cited as evidence for why this must be so (e.g., Binmore, 2004)."
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Here's the table of contents of the issue:
Here's an interview with Vernon Smith, in which he comments on the history of economics and his place in it.
Interview with Vernon L. Smith by Sami Al-Suwailem
"Smith was born in 1927 in Wichita, Kansas. He received his bachelor’s degree in electrical engineering at Caltech in 1949, an M.A. in economics from the University of Kansas, and a Ph.D. in economics from Harvard University in 1955.
...
"GL: In your recent book, Economics of Markets, coauthored with Sabiou Inoua, you argue (convincingly, I’d say) that “markets succeeded where theory failed.” Does that imply that economic (neoclassical) theory failed to study real-world markets well enough?
"VS: It’s more that they failed to study them at all and, in particular, failed to model price formation or price discovery in market processes.
...
"Walras not only failed to model price discovery but gave us a mechanism that required price mysteriously to be given, then used to model price change depending on the sign of excess demand. This diverted theorists from modeling price discovery and, we believe, created the illusion of progress, but it was more appropriately considered a regress occasioned by marginal analysis, which helped not a wit to address the fundamental task.
...
"GL: In your work, you argue that competitive equilibrium can be quickly achieved under very reasonable experimental conditions for consumption goods, but that this is not the case for assets where speculation may substantially distort the outcomes. Economic theory seems to pay no attention to this important difference. Why is that?
"VS: It is because standard theory tends to be insensitive to close observation: Item A is purchased in preference to item B if and only if U(A) > U(B), a theory that makes no advance prediction but rather concludes only that if A is bought rather than B it must have had higher utility value.
...
"In consumer markets, buyers attempt to buy cheap, constrained by their maximum wtp private value. Sellers try to sell dear but are limited by their minimum willingness-to-accept (wta) costs.
"The problem with asset markets is that they have a value-in-use like any consumer good but also a value-in-resale. This sets up a conflict that has to get resolved before an asset market can settle into any sort of equilibrium.
"All economic stability arises in consumer markets, while all instability arises in asset markets for re-tradable goods. Fortunately, about 75% of private products cannot be re-traded, causing great stability.
"GL: The Nobel Prize in Economics was awarded in 2012 to Lloyd S. Shapley and Alvin Roth for their work on market design. How do you see the relationship between these two branches, market design and experimental economics?
"VS: They are closely and intimately related. Indeed, my work in market design was part of my recognition in 2002, and was part of my presentation in 2001 at the Nobel Conference on Experiments in Economics, the year prior to the award."
CMSA/Tsinghua Math-Science Literature Lecture: Scott Kominers
My loose impression is that, not so long ago, scholars of human evolution discounted recent changes in the human genome, pointing out that maybe the frequency of lactose intolerance had been altered by the domestication of cattle, goats, and sheep, but suggesting that recent changes (i.e. since the invention of agriculture) were rare. This may have been an anti-racism perspective, or it may be that new data have changed this view, but indeed it seems to have changed.
Gene changes in recent milennia offer a window on how human patterns of interaction, regarding food acquisition and preparation, and communal living, may even cause changes in human biology.
Here's a special feature on the subject, at the PNAS:
Special Feature: The Past 12,000 Years of Behavior, Adaptation, and Evolution Shaped Who We Are Today
"The authors of this Special Feature focus on challenges pertaining to dietary and nutritional quality and adequacy, resource inequality, interpersonal conflict and warfare, climate change, population trends, demographic transitions, migration, mobility, infectious disease and the rise of novel pathogens, and the transformative circumstances of human biology over the last 12,000 years.
My Stanford colleague Paul David has died. He was an exceptional, iconic economic historian.
Gavin Wright has written this obit:
Professor Paul David died at the age of 87
"Always an economic historian, Paul soon extended his horizons in diverse and seemingly disparate ways. He became a strong advocate of the view that historical research should be fundamental to the economics discipline; in brief; “history matters.” The essence of the argument was captured by Paul’s incisive account of the persistence of the QWERTY typewriter keyboard despite its technical disadvantages, one of the most cited articles in all of economics (AER 1985). “History Matters” is the title of a festschrift presented by a group of Paul’s former students in 2004, in which the editors write: “No scholar has more forcefully and influentially argued the case for making economics a truly historical social science – one that, like evolutionary biology, gives past events a central role in understanding the present.”
"A continuing focus throughout Paul’s career was the diffusion of new technologies. An important early paper considered the adoption of the mechanical reaper in the American Midwest. Invention occurred in the 1830s, yet the first wave of adoption occurred only in the 1850s. The twenty-year delay, according to Paul, was explained by the fact that a minimum scale was required to cover the fixed costs of purchasing the reaper. Only when farms size passed this “threshold” did mechanization make economic sense. Specialists have debated the specifics ever since, but the basic form of Paul’s diffusion model has been highly influential. In many respects it formalized the accounts of delayed diffusion presented by our late colleague Nate Rosenberg, and thus became something of a “Stanford school” of thought in this area. Scrolling forward to 1990, the era of the “Solow paradox,” Paul offered an analogy between the delayed productivity effects of computer technology and a similar lag in the impact of electrification between the 1880s and the 1920s. With the IT-driven productivity surge of the late 1990s, this article also attained iconic status (AER 1990)."
Silicon valley didn't transition directly from fruit orchards to silicon chips. Vacuum tubes took center stage for a while.
Here's a California historical landmark on the NE corner of Emerson Street and Channing Avenue in Palo Alto, commemorating the Federal Telegraph Company, founded by radio/electronics pioneer Cyril Frank Elwell (August 20, 1884 – 1963), who graduated from Stanford in 1907.
As I'll explain below, here's a long-awaited paper that fully qualifies for that description:
MEDIEVAL MATCHING MARKETS by Lars Boerner and Daniel Quint, International Economic Review, First published: 15 July 2022 https://doi.org/10.1111/iere.12600
Abstract: We study the regulation of brokerage in wholesale markets in premodern Central Western Europe. Examining 1,804 sets of rules from 82 cities, we find brokerage was primarily a centralized matchmaking mechanism. Brokerage was more common in towns with larger populations, better access to sea ports and trade routes, and greater political autonomy. Brokers' fee structures varied systematically: price-based fees were more common for highly heterogeneous goods, quantity-based fees for more homogeneous goods. We show theoretically that this was broadly consistent with total surplus maximization, and that brokerage was more valuable in markets with unequal numbers of buyers and sellers.
...
"We investigate how societies organized markets and whether their market policies were well designed to have a positive effect on welfare. We look at one important type of regulated allocation process, the organization of intermediation in the form of brokerage, primarily in wholesale markets. Regulated intermediation first appeared in European towns during the second half of the 13th century. Early regulations can particularly be found in Italy and the Lower Countries (van Houtte, 1936; Rezzara, 1903). However, a comprehensive quantitative study on the origin, spread and development of the brokerage institution is missing so far. Origins of brokerage have been linked to the urbanization process of the 13th century (van Houtte, 1936); whether it can be related to preceding medieval Arabic merchant institutions or Roman law is an open debate (van Houtte, 1936; Lieber, 1968).
"We study 231 cities in Central and Western Europe, roughly in the area of the Holy Roman Empire north of the Alps, during the period from 1200 to 1700. This area and period are particularly appealing for empirical investigation because local municipalities were typically economically and politically autonomous. Thus, each city could implement its own types of regulations and allocation mechanisms, leading to potentially rich variation in detail.
"We identify cities with (and without) brokerage regulations and find in cities with regulations a dominant brokerage design with specific combinations of rules. The dominant design was a sort of centralized matchmaking mechanism: a few licensed brokers specializing in a particular product were given the exclusive right to offer a service pairing mainly foreign merchants with local buyers, and their behavior was strictly regulated. Brokers were not allowed to do any business on their own behalf and were restricted in what information they could disclose. The brokerage service was open to everybody, to the rich and poor, and to foreign and local merchants. Brokers received a predefined fee based on the transactions they generated—most commonly either a fixed fee per unit traded or a fixed fraction of the sales price."
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I normally don't blog about papers twice, i.e. if I've blogged about the working paper I don't blog again about the published paper. But this one has changed since I first blogged about it, and it implicitly tells us something about the current (but still medieval) publication system in Economics, since that was more than a decade ago. Here's the earlier (2011) blog.
I pay some attention to how market design is discussed in the history/sociology of science and methodology/history of thought literatures (even though I know how Feynman thought they are related to ornithology).
Here's a pretty sympathetic, modern view.
Philippe van Basshuysen (2022) Markets, market algorithms, and algorithmic bias, Journal of Economic Methodology, DOI: 10.1080/1350178X.2022.2100919
ABSTRACT: "Where economists previously viewed the market as arising from a ‘spontaneous order’, antithetical to design, they now design markets to achieve specific purposes. This paper reconstructs how this change in what markets are and can do came about and considers some consequences. Two decisive developments in economic theory are identified: first, Hurwicz’s view of institutions as mechanisms, which should be designed to align incentives with social goals; and second, the notion of marketplaces – consisting of infrastructure and algorithms – which should be designed to exhibit stable properties. These developments have empowered economists to create marketplaces for specific purposes, by designing appropriate algorithms. I argue that this power to create marketplaces requires a shift in ethical reasoning, from whether markets should reach into certain spheres of life, to how market algorithms should be designed. I exemplify this shift, focusing on bias, and arguing that transparency should become a goal of market design"
I have to admit, I found this section heading charming (and not as funny as everyone else should:)
I'm in Stockholm for a celebration of the 100th anniversary of Emile Borel's 1921 paper on Game Theory.
It's a three day conference, Friday through Sunday, but I gather that only Sunday will be publicly available on Zoom.
Here's the schedule for all three days:
NOBEL SYMPOSIUM “ONE HUNDRED YEARS OF GAME THEORY”, DECEMBER 17-19, 2021
My talk is on "Game theory and economic engineering: Dealing with big strategy sets, including invention of new strategies"
And here's the announcement and Zoom link for Sunday, Dec 19 (the day Borel's paper was presented in 1921)
One Hundred Years of Game Theory: Future Applications and Challenges
"On December 19, 1921, the mathematician Emile Borel published a paper which laid the foundation of game theory. He offered a new framework for analysis in economics, political science, and other social and behavioral sciences. The centennial of this publication is a good occasion to ask where we may look today for the next breakthroughs that will be important for future economics and other social sciences, and for biology and computer science. What are the most promising directions for application? What are the most important challenges?
Start time: 2021-12-19 at 14:30
End time: 2021-12-19 at 16:30
Location: via Zoom. Link will be sent to the email address provide in the registration form."
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I hear that some of the scheduled speakers who expected to come in person on Sunday will, at the last minute, not be able to do so, due to various outbreaks of Covid, particularly at Cornell. Fortunately we've become good at using Zoom...
Here's a 10 minute video in which I discuss how retail markets have changed over the last century and more, with the invention of mail order catalogs, and the growth of downtown department stores (in part as a result of urban public transportation), and then suburban shopping malls, before our current age of digital commerce and home delivery.
This was my discussion of talks by Rob Townsend and David Autor at the October zoom conference
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