Kenneth Arrow passed yesterday. He was my second favorite economist who made their bones in the 50s and 60s. Much like Herb Simon (my favorite) he makes my head hurt whenever I try to think hard about what he is saying in whatever field he is commenting on and thus leading it in a new, intriguing and useful direction. Here is a link to his seminal healthcare insight and paper
The key insight is that the medical market operates under massive uncertainty and time variance of knowledge. Risk can be priced but uncertainty can not be priced. This leads to extraordinarily inefficient outcomes if we assume a traditional competitive market framework.
If you want to gain a good understanding of health policy, read this paper and then read Akerlof’s Lemons paper. And then reread them until your head hurts.
We lost a giant but his ideas and influence will remain.
Coincidentally, I am going to lecture on Arrow’s Impossibility Theorem in my “math of voting” class tomorrow!
FYI, both link to the obit., but not the paper.
@evap: That was my first exposure to Arrow — January 2001 for a class very similar to the one you are teaching. That made my head hurt. And then I was introduced and had a brief conversation with Herb Simon a month later… that was a good and exhilarating semester for my intellectual growth.
@David Anderson: The students are a mixture of Applied Math majors and Quantitative Social Science majors. It is a blast — one of my top teaching experiences in 30+ years! I hope I’m making some of their heads hurt…
@evap: Are you including Gregg Adams paper on the transformation of partisanship in the Illinois legislature after they switched from multi-member districts to single member district voting? That was a cool applied paper that I keep tucked away in the back of my brain.
Villago Delenda Est
And there is not a single Rethuglican in this country who grasps this.
In grad school we referred to these as “three timers” because we had to read them at least three times to figure out what it was we weren’t getting.
@pluky: They are both at least three timers!
@David Anderson: Thanks very much for these papers. Not like I have enough to read already, but I want to try to dig into these when I have some time.
@David Anderson: What was the takeaway from that paper?
Arrow was a great and innovative economist. Very exceptional in supporting alternative views, even among those who questioned some of his own achievements. He was very supportive of some mathematicians who had some serious criticisms of his famous impossibility theorem (namely, does the independence of irrelevant alternatives assumption make sense when aggregating individual preferences). Supported some very innovative work on the fundamental and inescapable instability of any and all financial markets. A big contrast to many famous big shot economists, in that way.
Below is link to an expository paper that steps through problems of health insurance, particularly the famous Stiglitz-Rothschild result on how cherry picking destroys standard equilibrium in insurance markets
ON THE DESIGN OF HEALTHY EXCHANGES FOR SICK INSURANCE
Daniel McFadden, Carlos Norton and Peter Olivella
Regarding his impossibility theorem, Interesting that he supported both Donald Saari, who is the chief critic on his use of irrelevance of independent alternatives assumption as a requirement for a sensible procedure in analysis of aggregated individual preferences (as opposed to individual preferences themselves) and Gracilia Chichilnisky who did work on generalizing his impossibility theorem to choice over a continuums, where it is very difficult to find any aggregation procedure (even market procedures) that does not produce in an impossibility result.
Never a dull moment with Arrow.
I was first introduced to Arrow in a political science class taught by William Riker at the University of Rochester a long time ago. Arrow’s Paradox speaks to the power of controlling agenda setting. I read the post-war health care paper in the 90’s and have often used the concepts presented there as a reason we shouldn’t shop for health care like home appliances. Reading him always meant rereading but a great contributor to the human project-may he RIP.
@David Anderson: Don’t know if you are still following this thread, but have you seen that the Individual Mandate can be ignored this year?
@Brachiator: u referring to IRS not rejecting returns w a null box 61? No change from 2016
The IRS changed some efile edits. They were gong to reject affected returns:
This started to get news coverage and is being interpreted by taxpayers as meaning that they do not have to pay the shared responsibility penalty.
Software companies are including updates that allow a tax preparer to explicitly select a “silent return.” Before this, a diagnostic warning would be generated in some tax software.
Economics makes my head hurt too, as does foreign policy.Fascinating, but you need an aspirin.
@Villago Delenda Est:
Grasping and denying is not the same thing as not grasping.
Plenty of Republicans can do the math, it’s just that they ignore the result. Anyday now the Laugher Curve will balance the budget, also, too dynamic scoring.
It doesn’t have to work, it just has to sell – that’s the only fundamental truth the Republicans believe in.
@Marcopolo: Know this thread has passed on, but I had to comment. Riker died about 4 years before I came to UR, but I encountered Arrow’s thinking there for the first time in Aldrich’s book on political parties. That was the first book that really made my head hurt and extended my thinking. I’m much better for it.