Operant Conditioning

--Ring, ring. Ring, Ring.

--Who's there?

--We're economists from the University of Chicago. May we come in?

The members of the Swedish Academy reach for the serviettes that are placed discreetly at their right hands. So much drooling upon the sound of the bell and the mention of economists, coupled with the key words "University of Chicago". What tasty morsels the good professors always provide, and how could an Academy member not drool in anticipation.

This year's Nobel for economics has been awarded to three gentlemen who carry the dust of the U of C on their tweedy clothes. Their claim to fame revolves around a small subset in the mighty world of economic theory, tagged with the label of mechanism design. As the Academy has been thoroughly trained to award their economics prize to University of Chicago economists, they have followed through on their operant conditioning and handed over the goods.

What does mechanism design do? It seeks to find a system-wide solution to the problem posed by many cooks who wish to make the broth in their own way. Too many cooks, of course, spoil the broth, but mechanism design will discover a way to allocate the many resources of the kitchen to each chef so that they all contribute towards a unified goal.

The current economic model favored in Europe does not hold with the mechanism design theory, in which the selected outcome is implemented no matter what recipes the many cooks would like to use in making their broth. Of course, mechanism design is an offshoot of game theory, and it's the Americans who are so fond of playing games while their European counterparts are thinking deep thoughts and sipping fine wines and sniffing with disdain.

Leonid Hurwicz, Eric Maskin and Roger Myerson will split the million, get lovely medals from the King of Sweden and then go back to work, thinking really, really deep thoughts and finding even more ways to move markets efficiently. And so the American economy chugs along while the Europeans wonder how they'll pay the bills for a crushing burden of entitlements.