By David Cho
Washington Post Staff Writer
Tuesday, October 16, 2007

The Nobel Prize in economics was awarded to three Americans yesterday, including Leonid Hurwicz, a 90-year-old professor emeritus at the University of Minnesota, the oldest person ever to win a Nobel.

Hurwicz won for pioneering a field in the 1960s called mechanism design theory, which has had real-world applications as varied as helping insurance companies provide more effective coverage and designing the government's auction of wireless airwaves.

Forty years after developing his ideas, the Russian-born Hurwicz earned his field's most prestigious prize, sharing it with two 56-year-old economists who made significant advancements in the theory: Eric S. Maskin, a professor at the Institute for Advanced Study in Princeton, N.J., and Roger B. Myerson, a professor at the University of Chicago.

Maskin said he got the call from the Royal Swedish Academy of Sciences at 6:30 a.m. and "was so sleepy" that he initially had trouble understanding what the man on the phone was saying. "I figured it out pretty quick," he said in an interview.

Hearing that Hurwicz had also won was the "best news of the day," Maskin said.

"There are many of us in the profession who wanted him to win for a good many years," he said. "I nominated him, and for 15 years or something like that it seemed it had come to nothing."

Hurwicz said he had nearly given up hope for the prize.

"There were times when other people said I was on the short list," Hurwicz said in a conference call, according to the Associated Press. "But as time passed and nothing happened, I didn't expect the recognition would come because people who were familiar with my work were slowly dying off."

Mechanism design theory is an outgrowth of game theory, which gained popular recognition in 1994 when John Nash, the economist who became the subject of the book and film "A Beautiful Mind," won the Nobel Prize in economics.

"My life was literally changed when the 1994 Nobel prize was given," Myerson said at a news conference in Chicago. "Suddenly people who didn't know about the field . . . began to recognize the importance."

The 18th-century economist Adam Smith once described the free market as an "invisible hand" that distributes scarce resources efficiently. But in the real world, markets do not always operate perfectly. Sometimes sellers and consumers do not have the same information about a product, or powerful groups influence events.

Mechanism design theory is used to develop solutions for such problems. Take the example of two people trying to divide a pie: A simple "mechanism" to ensure that the distribution will be fair might be to have one cut the pie into two and the other choose between the pieces.

Hurwicz, who grew up and was educated in Poland, emigrated to the West during World War II. He gained interest in mechanism design after the war, when economists were intensely debating whether socialist reforms and a planned economy could work. Rather than delve into the ideology behind these debates, Hurwicz used math and economics to come up with a theory of how to design efficient programs that would take into account real-world problems.

Maskin and Myerson showed that the theory had broad applications.

After the 2000 election showdown in Florida, for example, Maskin wrote an article in Scientific American proposing a mechanism that he said might have prevented the debacle. The problem that put the election in the hands of the Supreme Court was that each of the major candidates, Al Gore and George W. Bush, got 48 percent, a minority, of the vote, with several third-party candidates splitting the rest.

This issue would not have arisen, Maskin said, if voters had originally been asked to rank the candidates in order of preference, rather than choosing just one. The state's electoral votes of would go to the candidate who was ranked the highest overall.

"Simply put, mechanism design is all about whether your goals are attainable by some mechanism," Maskin said yesterday.

The theory has led to the development of complicated algorithms that help insurance companies match customers to the right policies and medical students to the proper internships.

This is the eighth consecutive year that the economics prize has gone to Americans. The award, officially known as the Prize in Economic Sciences in Memory of Alfred Nobel, was created in 1968 by the Swedish central bank and is not one of the original Nobel prizes. The winners share a cash award of about $1.5 million.