by Sylvia Nasar
Few people outside Sweden, indeed, few outside the Royal Swedish Academy of Sciences, realize how controversial, even vulnerable, the economics prize has been since its creation in 1968 and continues to be to the present.
The economics prize has never been especially popular within the academy. “Many people question the Nobel Prize [in economics] here,” said one longtime member.80 Oldtimers still thought it had been a grave mistake to add a new Nobel to the original prizes. They thought it cheapened the currency and had, after the “mistake” of accepting the economics prize, successfully fought off efforts to establish other prizes that used the Nobel name. Erik Dahmen, an economist who was a close adviser to one of the richest families in Sweden, the Wallenbergs, calls it “the so-called Nobel Prize in economics.”81 He adds:
This is not really a Nobel Prize. It should never be spoken of together with the other prizes. The academy should never have accepted the prize in economics. I have been against the prize since I became a member of the academy.
One physicist said: “The economics prize was just a way of jumping on the Nobel bandwagon, piggybacking on the Nobel.”82
Economics was not held in high regard by many of the natural scientists who dominated the academy. It is not, they said, a sufficiently scientific field to deserve equal footing with hard sciences like physics and chemistry. Ideas, they said, slipped in and out of fashion, but one could not point to scientific progress, a body of theories and empirical facts about which there was certainty and near-universal agreement. Anders Karlquist, a physicist, said, “It’s not as solid and big an enterprise as chemistry and physics.”83 Lars Gårding, a mathematician at the academy, for example, said later that Nash’s prize was for “a very small thing.”84
Finally, there is a widespread feeling, particularly on the part of natural scientists and mathematicians, that the shallowness of the field was leading to a sharp and rapid decline in the quality of Laureates — a decline that would necessarily worsen with time. Bengt Nagel, secretary of the physics Nobel Prize committee, jokingly quotes an economist who is supposed to have said in the early 1980s, “All the mighty firs have fallen. Now there are only bushes left.”85
There are occasional calls to abolish the prize. After Myrdal won the prize, he is supposed to have suggested abolishing the prize because there were no longer any prizeworthy candidates.86 As recently as 1994, Kjell Olof Feldt, the former minister of finance and soon-to-be chairman of the board of the Bank of Sweden — which finances the prize — suggested in a lengthy article in a political monthly that the prize be done away with.87
But although many academy members regret that the prize was established in the first place, said Karlquist, they “realize that it’s a fact of life.”88 By 1994, in fact, the critics’ objective was to wrest control of the prize from the economists. Lindbeck was personally unpopular. It was particularly galling that membership in the economics prize committee seemed to be a lifetime sinecure and that its members could choose winners without any real accountability to the academy.
In February, an academy committee had “suggested” that the economics prize committee be forced to operate by the same rules that apply to the physics and chemistry committees.89 The suggestion was not binding, but it was a warning note, the first concrete sign that critics of the prize were gaining momentum, and it carried with it the promise that the academy council would, when it got around to it, appoint another group specifically mandated to deal with the matter of the economics prize. The imposition, as for other standing committees, of term limits would, of course, have a drastic and immediate effect on the economics committee. It would eliminate Lindbeck, Mäler, and Stahl, the three longtime members, and virtually end their reign. The other, and more drastic, suggestion was to widen the membership to include non-economists and, most radically, to transform the economics Nobel into, in effect, “the Nobel Prize in social sciences,” a notion that appealed not only to natural scientists, but also to the psychologists, sociologists, and other non-economists in the academy’s Ninth Class.90
Thus the debate between Lindbeck and Stahl over whether Nash was a suitable candidate for the prize, a debate that really turned on whether the choice of Nash would embarrass the committee, took place in an unusually hostile atmosphere and under intense scrutiny. The future of the prize committee and the prize looked more vulnerable than they had in times past. All of these behind-the-scenes opinions and maneuvers explain why, between early September and early October, Stahl acquired a powerful set of allies who joined him for reasons quite apart from Nash’s candidacy.91 The stage was set.
In the end, Nash and the two other candidates for the 1994 economics prize passed by a mere handful of votes — the first in the history to skirt so close to defeat.92 It is a peculiarity, indeed a major administrative and logistical headache, of the Nobel Prize process that no award can really be said to exist until the members of the full body of the Royal Swedish Academy of Sciences have had their say. They have “the sole right to decide,” as a Nobel Foundation booklet puts it: “Even a unanimous committee recommendation may be overruled.”93 Only when the plenary session has cast ballots and the votes are counted and the results announced do the secretary general and members of the prize committee march off to telephone the winners. They then proceed to the Sessions Hall to announce the winners’ names to the world press. Other prizes, like the Fields Medal for mathematics or the John Bates Clark medal for economics, by contrast, are settled months ahead of time, their winners notified after a leisurely interval and carefully instructed to sit on the secret until the awarding institutions get around to issuing their press releases or holding their festivities. Presumably, the inconvenience of the last-minute Nobel vote is outweighed by the benefit of being able to avoid leaks before the official announcement.
The Nobel vote, moreover, is traditionally a mostly ceremonial affair, the final flourish after a lengthy selection procedure that is more or less completely dominated by the senior members of the prize committees. In the case of the economics prize, a few dozen random academicians — a fraction of the number who turn out for the physics or chemistry prizes, the other two Nobel awards administered by the academy — assemble in the second week of October largely for the pleasure of hearing a distinguished lecture on the proposed candidates’ contributions to scientific progress. As one academy member put it, “Members attend less for the vote itself than for a chance to hear the presentations.”94 In some recent years, the modest quorum of forty academy members has proved difficult to achieve.95 According to the rules, academy members have three options. They may vote for the candidate or candidates proposed by the committee and endorsed by the Social Sciences Class. They may vote for an alternative candidate of their own choosing. Or they may vote not to give a prize that year. The winner or winners must obtain a simple majority of votes. Until 1994, no candidates proposed by the committee had ever failed to gain a wide majority of votes.
The academy meeting that began promptly at 10:00 A.M. on Tuesday, October 12, in a rather small, poorly lit auditorium tucked in a far corner of the academy’s ground floor,96 promised to be no more or less interesting than previous years’ meetings. Fewer than sixty members were scattered around the room, but, as the officials present noted with satisfaction, there was no question of not getting a quorum. (A couple of years earlier, thirty-nine members had sat in that room waiting for a fortieth — who did finally show up.)97 Kerstin Fredga, the astrophysicist who was the academy’s president, and Carl-Olof Jacobson were sitting side by side on the stage. The ballot box was perched at the end of the platform. The five members of the prize committee who belonged to the academy were sitting near the front of the room.
Lindbeck was at the podium in a few long strides. Wearing his thick blackrimmed glasses and usual frown of concentration, Lindbeck dove right into his subject, an overview of the entire process by which the committee had arrived at its recommendation for a prize in game theory. Always intense, Lindbec
k stuttered with excitement, waved his long arms, and made a good many very dry jokes.98 He was followed by Jacobson, low-keyed by contrast, who gave the official endorsement of the Social Sciences Class. Both men claimed that the decisions by the committee as well as the Class were, as always, unanimous. Lindbeck added that unanimity had come about “as if by an Invisible Hand,” his standing joke. Finally, Mäler got up and launched the main presentation, a lecture on the contributions of the three candidates.
The lecture was quite disappointing. Mäler, never a brilliant speaker, was more nervous and unsure of himself than usual.99 He quickly became mired in technicalities and jargon. He read most of it. His wife had left him a few weeks earlier, he was agitated and depressed, and he had had a terrible time preparing the talk.
All this took something like an hour. Had things proceeded as usual there would have been a few rather perfunctory and mostly polite questions from the floor, perhaps a standard monologue by one of the oldtimers about the dubiousness of the economics prize in the first place, before a general silence, a passing-out of plain squares of white paper and number two pencils, quick scribbles, folding, and the drifting down of academicians to the stage to stuff their ballots in the box.
Instead, all hell broke loose. Later the president of the Nobel Foundation remarked wryly that “Troy could only have been destroyed by someone inside the walls. And that’s what happened here.”100 No one recalls whether Stahl launched the first verbal grenade, but it was soon obvious to Lindbeck and Mäler that they were in the midst of an ambush. Stahl challenged Mäler to give a single major example showing that the theory had any empirical validity’ whatsoever. Mäler, who was in particularly poor shape to answer questions, fumbled. Stahl did not — contrary to a story six weeks later in Dagens Nyheter, one of Sweden’s two dailies — do anything as crass, or risky, as to urge the academy to withhold the prize to Nash because of the mathematician’s mental illness.101 Instead, he argued, forcefully and brilliantly, that a prize for non-cooperative game theory was too narrow, too insubstantial, too technical. He reminded the audience that Nash’s contribution had been made nearly half a century earlier and that it was more mathematics than economics. He derided Harsanyi and Selten for being “boring,” “mere technicians.” Other members of the audience soon chimed in.
Stahl did not make the mistake of merely criticizing the committee’s proposal, which, after all, he had signed. He had an alternative, he said.102 In light of the members’ unhappiness, in light of unanswered questions, in light of Mäler’s clearly unsatisfactory report, might it not be more prudent to postpone the prize in game theory? Why not vote instead to give the prize to Robert Lucas, the University of Chicago professor whom the committee had virtually decided to propose for the following year.103 Everybody, he reminded them, was enthusiastic about Lucas, who had invented a theory to explain why governments’ efforts to manage the business cycle were doomed to failure —“rational expectations” — and was clearly one of the most important economists of the century. It was an unassailable choice.
Lindbeck, who had at first seemed stunned by the audacity of Stahl’s surprise attack, told the members in no uncertain terms what Stahl was implying. He reminded the members that Stahl had signed on to the game-theory prize and accused Stahl of wishing to scuttle the prize because of Nash’s illness. He told the membership that it would be a grave injustice to withhold the prize. He did not tell them that, in an absolute breach of the Nobel rules, he had already informed Princeton University’s president, Alicia Nash, and Nash himself that he was getting the prize. But those facts were very much in his mind as he appealed to the members.104
By the time Carl-Olof Jacobson called for the vote, the atmosphere in the room was tense and bitter. An unusually large number of academicians stayed to hear the vote count. Two members of the academy chosen by the president and Jacobson removed the ballots in front of the audience and tallied the votes. The paper was handed to Jacobson, and Jacobson read the votes one name at a time. For Lindbeck it was, as he later said, a moment of unbearable suspense. Mr. Nash … Mr. Harsanyi … Mr. Selten … Mr. Lucas … no prize… .
A few moments later, Fredga, Jacobson, Lindbeck, and Mäler, very much shaken, were the only ones left in the room. Their candidates had gotten all that they needed: a slim majority of the votes.
Later, in public, these individuals would all deny that anything extraordinary had happened. They would pretend that Mäler’s report had been unusually long, that there had been a great many questions, that the Laureates had been difficult to reach, or simply state baldly that the delay had never occurred. But behind closed doors, within the academy, there would be shock, consternation, and finger-pointing. “It was a unique event. It had never happened before,” said one member of the academy. “It’s not good for the academy to have close votes,” said Kiselman.105 The very next day the council hastily appointed an ad hoc committee “to study the future of the economics prize.”106
Afterward, a committee member friendly to Stahl would say that Stahl had been “used by the physicists.”107 Stahl’s double-cross had backfired. Instead of being regarded as the man who saved the prize committee from an embarrassing mistake, he had set into motion the very consequences he feared. Like players in So Long Sucker, the game that Nash and his friends at Princeton had invented forty years earlier, Lindbeck and Mäler formed a temporary coalition with the critics of the economics prize. They threw themselves behind the rules changes. They were determined to punish Stahl and get him off the committee — even if the new rules meant that they had to step aside as well. One prize committee member called their strategy “elegant.”108 Had Nash known about it, he would have appreciated it as a textbook execution of McCarthy’s Revenge Rule, especially because Lindbeck could reasonably expect to get elected to the committee again after a three-year interlude, but Stahl, who had provoked the scandal and compounded his sin by talking to a reporter, was out for good.
The consequences did not end there. According to several members of the academy, the ad hoc committee went on record to recommend changing the very nature of the economics prize. In its report, issued a few months later, in February 1995, the committee issued an instruction that essentially redefined the economics prize as a prize in social sciences, open to great contributions in fields like political science, psychology, and sociology.109 It also ordered the committee membership to be opened to two non-economists. No public announcement of these far-reaching changes was made. But within a year, Lindbeck, Mäler, and Stahl were gone; two social scientists who weren’t economists — a statistician and a sociologist — were members of the prize committee; and among the top candidates for the prize was Amos Tversky, an Israeli psychologist who works on irrationality in decision making.110
In the auditorium on October 12, the three men rushed over to a small committee room.111 Jacobson was armed with a page of telephone numbers for the Laureates. It was he who would inform the Laureates of the honor that was about to grace them.
They tried to reach Selten first since Selten was in Germany and, unlike Nash or Harsanyi, would not necessarily be asleep. It was early in the morning for Nash in New Jersey and the middle of the night for Harsanyi in California. As it turns out, Selten was out grocery shopping. Jacobson then tried Harsanyi and, when he got him, quickly put Mäler, who knew Harsanyi well, on the line to quickly assure him, with much joviality, that Jacobson was not some student or, worse, reporter playing a trick on him.112
Nash was the last to be called. Jacobson waited expectantly as the telephone rang. Unbeknownst to most of Jacobson’s colleagues at the academy, he had a brother who, like Nash, had been diagnosed with schizophrenia as a young man in the 1950s and had been institutionalized ever since.113 It was a moment of incredible poignancy for Jacobson, “the greatest moment,” he later said, of his twenty-year tenure at the academy.
“He was unusually calm,” he said afterward. “That was my thought. ’He is taking this very calmly.’
”114
49
The Greatest Auction Ever
Washington, D.C., December 1994
ON THE AFTERNOON of December 5, 1994, John Nash was riding in a taxi headed to Newark Airport on his way to Stockholm, where he would, in a few days’ time, receive from the King of Sweden the gold medal engraved with the portrait of Alfred Nobel.1 At around the same time, a few hundred miles to the south, in downtown Washington, D.C., Vice-President Al Gore was announcing with great fanfare the opening of “the greatest auction ever.”2
There was, as The New York Times would later report, no fast-talking auctioneer, no banging gavel, no Old Masters.3 On the auction block was thin air — airwaves that could be used for the new wireless gadgets like telephones, pagers, faxes — worth billions and billions of dollars, enough licenses for every major American city to have three competing cellular phone services. In the secret war rooms and bidding booths were CEOs of the world’s biggest communications conglomerates — and an unlikely group of blue-sky economic theoreticians who were advising them. When the auction finally closed the following March, the winning bids totaled more than $7 billion, making it the biggest sale in American history of public assets and one of the most successful (and lucrative) applications of economic theory to public policy ever.4 Michael Rothschild, dean of Princeton’s Woodrow Wilson School, later called it “a demonstration that people thinking hard about a problem can make the world work better … a triumph of pure thought.”5
The juxtaposition of Gore and Nash, the high-tech auction and the medieval pomp of the Nobel ceremony, was hardly an accident. The FCC auction was designed by young economists who were using tools created by John Nash, John Harsanyi, and Reinhard Selten. Their ideas were specifically designed for analyzing rivalry and cooperation among a small number of rational players with a mix of conflicting and similar interests: people, governments, and corporations — and even animal species.6
