Nobel prize is exactly the sort of thing that journalists have nightmares
about. They wake up early, and read a citation
from the Royal Swedish Academy of Sciences giving the Economics prize to three
economists they’ve never heard of, for helping to develop an entire discipline
– mechanism design theory – that they’ve also never heard of. And
so if I were you I’d leave the MSM alone and head straight over to Marginal
Revolution, where Tyler and Alex are doing a great job of bringing us all up
to speed. Start
here, and then read more on Eric
Maskin, Roger
Myerson, and Leonid
Hurwicz. Or alternatively, you can try my own 98-word explanation of what
mechanism design theory is:
A mechanism is a framework, basically, within which one finds a market. Some
markets don’t need a mechanism to work well, but others do. For instance, let’s
say that you have a monopoly, and a regulator. The regulator sets up a framework
so that the monopoly doesn’t overcharge. Or let’s say you want to sell a very
illiquid asset like a rare and unique painting. An auction house will set up
a framework so that your painting can be monetized in a transparent manner.
Mechanism design theory is the science of structuring such frameworks in an
optimal manner.