KENNETH ARROW

My research, even before 1972, moved in directions beyond those cited for the Nobel Memorial Prize. Most of it, in one way or another, deals with information as an economic variable, both as to its production and as to its use.

That economic decisions are made without certain knowledge of the consequences is pretty self-evident. But, although many economists were aware of this elementary fact, there was no systematic analysis of economic uncertainty until about 1950.

My undergraduate education, at the City College in New York, was made possible only by the existence of that excellent free institution and the financial sacrifices of my parents.

My graduate study was interrupted, like that of many others, by World War II.

Any purchase is one for the future. If you buy a refrigerator, you are making a commitment to the future so that you have food to eat for the next ten years.

The major driver of economics is the equilibrium approach, which has taken various forms over the years. General equilibrium is the statement that all the different parts of the economy influence each other, even if it's remote, like mortgage-backed securities and their demands on automobiles.

My assignment was exclusively in the research field, and my first published paper, On the Optimal Use of Winds for Flight Planning, was the outgrowth of that work.

I was graduated in 1940 with a degree of Bachelor of Science in Social Science but a major in Mathematics, a paradoxical combination that was prognostic of my future interests.

Not every business cycle has a financial crisis. Frequently they do.

In 1963 and later papers, I pointed out that the special market characteristics of medical care and medical insurance could be explained by reference to differences in information among the parties involved.

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

Collective action is a means of power, a means by which individuals can more fully realize their individual values.

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.

In a capitalist democracy there are essentially two methods by which social choices can be made: voting, typically used to make ‘political’ decisions, and the market mechanism, typically used to make ‘economic’ decisions.

You will vote for first choice candidate whether or not you think he'll win. But I'm saying you may find yourself for a candidate, a middling candidate, a candidate you don't think very well of, really. And you really don't like to avoid a catastrophe. Well, maybe that's a good thing. You can argue that back and forth.

Evolutionary theory tends to explain quite well in retrospect how various species emerged. It's not very good on prediction. Nevertheless, one cannot say that there isn't a lot of knowledge that's been obtained in this field. In the same way, with these complex physical phenomena between solid state physics, you can say a lot of things without necessarily knowing the next step.

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.

Usefulness depends on tractability.

Knowledge is a free good. The biggest cost in its transmission is not in the production or distribution of knowledge, but in its assimilation. This is something that all teachers know.

When you look at any experimental work not directly related to economics, but trying to test rational behavior in other ways, experiments have conspicuously failed to show rational behavior. Macro evidence certainly suggests deviations from rationality, but I don't want to say the rationality hypothesis is completely wrong. If you have any introspective idea or experimental idea about people's behavior, it seems to be incompatible with the really full scale rational expectations.

The health care provisions are presumably for individuals. And whoever pays for them, whether it's paid by the individual, state, whatever, the value is an individually based value. It has nothing to do with employment.

The trouble is that the risks that are being hedged very well by new financial securities are financial risks. And it appears to me that the real things you want to hedge are real risks, for example, risks in innovation. The fact is that you'd like companies to be able to take bigger chances. Presumably one obstacle to successful R&D, particularly when the costs are large, are the risks involved.

Now virtue may not always be its own reward, but in any case it is not usually bought and paid for at market rates.

I think one of the things we learned from the physicists and also the theoretical biologists is the idea that when you're dealing with very complex systems you're going to get a large variety of behavior which can be interpreted as hill climbing, but hill climbing with a lot of modifications, hill climbing with big jumps occasionally.

One doesn't like instabilities in markets; they may be damaging, but probably not fatal, as the October '87 crash showed. It turned out to be essentially inconsequential. So if that's true, I'm not very worried about the welfare of those who are investing any more than I am about the welfare of those who go into casinos.