In theory, Chicago is leader in economics

Roger Myerson shares top honor for his research into why some markets work better than others

Tribune photo by Michael Tercha, October 15, 2007

University of Chicago economics professor Roger Myerson discusses winning the Nobel prize for economics at Rosenwald Hall on Monday. Leonid Hurwicz and Eric Maskin also shared the prize for developing a theory that helps explain maximization of gains from a transaction.

By Robert Manor and Whitney Woodward | Tribune staff reporters

11:13 PM CDT, October 15, 2007

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Roger Myerson spent the bulk of his career as an economic theorist at Northwestern University, but when the telephone call came from Sweden, he was on the faculty of the University of Chicago.

Myerson, along with two other Americans, on Monday was awarded the Nobel Memorial Prize in Economic Sciences, adding to U. of C.'s reputation as a powerhouse in the study of economics.

"I could tell by the Swedish accents that it was a different kind of call," said Myerson, described as a brilliant economist and a good harmonica player. "It's been quite a day."

Myerson, along with Leonid Hurwicz of the University of Minnesota and Eric Maskin of the Institute for Advanced Study at Princeton, N.J., was honored by the Royal Swedish Academy of Sciences for work in the field of mechanism design theory. That area of economics seeks to understand why some markets work well and some do not.

Myerson focused much of his research on auctions and the exchange of information in deals. After carrying out his work at Northwestern for 25 years, he came to U. of C. in 2001. U. of C. added Myerson to an extraordinary list of Nobel laureates, declaring him the 24th winner in economics to have "ties" to the university.

Myerson, 56, seemed a bit overwhelmed during a morning press conference. But he was quick to praise both U. of C. and Northwestern.

"These are two great institutions, and I've had the privilege to work at both of them," Myerson said. "Chicago, both North Side and South Side, is just a great place to do economic analysis."

Officials at Northwestern, where much of the work for which he won the Nobel Prize was done, expressed excitement and admiration for Myerson.

"It's really a thrilling day for us no matter what," said Kathleen Hagerty, senior associate dean for faculty and research at Northwestern's Kellogg School of Management.

"He's our guy, even if he's at Chicago," Hagerty said. "He was here for a long time and he was a fantastic colleague and we still love him."

Northwestern spokesman Al Cubbage said Myerson will be listed as one of seven former students or faculty members to have won. The school has had one faculty member win the prize—John Pople, who received the award in 1998 for his work in chemistry.

U. of C. has seven Nobel laureates on its faculty and counts 80 winners, including Myerson, as having ties to the university because they were faculty members, students or researchers at the university.

Among those attending Myerson's press conference were three U. of C. faculty members to have a Nobel Prize in economics: Gary Becker (1992), Robert Lucas (1995) and James Heckman (2000).

Providing a framework

Mechanism design theory, Myerson's field, is an effort to find the optimal way for a market to work, if it can work.

Daniel McFadden, a professor of economics at the University of California at Berkeley who won the Nobel in 2000 and knows this year's winners, said mechanism design has evolved from an abstract concept decades ago into cutting-edge research.

"Their work is fundamental economic theory," McFadden said of the winners. "This really is what modern economics is about."

The theory provides a framework for evaluating whether different kinds of trading or markets are efficient. For example, many companies are limited in the amount of air pollution they are allowed to emit, but the government lets companies who emit less than the limit to sell pollution credits to companies that exceed the limit, helping them avoid penalties. Mechanism design theory provides a method for examining whether the market makes sense.

The three winners will split a $1.5 million prize.

"I have no idea what to do with the money," Myerson said.

Playing by ear

While Myerson is acknowledged as a premier economist, he also gets praise as a harmonica player.

On Sunday, Myerson joined a jam session playing "When the Saints Go Marching In" and "Amazing Grace" at a Chicago nursing home.

Skip Landt, his former harmonica teacher from the Old Town School of Folk Music, praised Myerson's musical ability.

"He's very good. He has wonderful tone … and he plays by ear. He doesn't have to look at any notes," Landt said about his former student.

Landt confessed he did not know Myerson was a prominent economist.

Myerson has written two books, three newspaper opinion-page pieces and 87 major academic papers.

His work broadened that of Hurwicz, 90, who initiated the concept. Hurwicz said that in recent years he didn't expect much attention would be paid to his accomplishment.

"I didn't expect the recognition would come because people who were familiar with my work were slowly dying off," he said, according to The Associated Press.

Taking a chance

Myerson said he gave a speech in Hurwicz's honor last year.

"Writing about those ideas, thinking about [Hurwicz's] contribution to it, was just one of the best writing assignments I've ever gotten," he said

Myerson and his wife, Gina Weber Myerson, recently celebrated their 25th wedding anniversary. She is an assistant dean and director of marketing at Northwestern's McCormick School of Engineering and Applied Science.

"He took a chance, going into an area that wasn't as well-developed. And he and many of his colleagues have invested a lot of time and creative energy, and it's paid off," she said.

Myerson has two children: a daughter, 22, who is in Beijing working in psychology and studying Chinese, and a son, 23, who is a first-year law student at Loyola University Chicago.

Myerson said his family frequently indulges him by letting him ramble about economics.

"I talk a lot about my work, and they're very nice to let me do it sometimes," Myerson said.

rmanor@tribune.com

wgwoodward@tribune.com