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Kenneth Arrow

137 quotes

“There is no need to enlarge upon the importance of a realistic theory explaining how individuals choose among alternate courses of action when the consequences of their actions are incompletely known to them. It is no exaggeration to say that every choice made by human beings would meet this description if attention were paid to the ultimate implications.”
Kenneth Arrow (1921–2017) first seen 1951 wikiquote, CC BY-SA 4.0 source
Recorded in: Alternative Approaches to the Theory of Choice in Risk-Taking Situations", Economterica (1951)
“Among economic phenomena which have in some way been tied up with the existence of uncertainty, three classes may be distinguished: (1) those which by their very definition are concerned with uncertainty; (2) those which are not related to uncertainty by definition but nevertheless have no other conceivable explanation; (3) those whose relation to uncertainty is more remote and disputable.”
Kenneth Arrow (1921–2017) first seen 1951 wikiquote, CC BY-SA 4.0 source
Recorded in: Alternative Approaches to the Theory of Choice in Risk-Taking Situations", Economterica (1951)
“Traditional welfare economics shows that there are certain of these combinations that will be preferred by all the voters, which permits us to eliminate the others without too much discussion. However, there will always remain an irreducible kernel of possibilities among which the choice rests on a combination or aggregation of individual ethical attitudes about distribution.”
Kenneth Arrow (1921–2017) first seen 1952 wikiquote, CC BY-SA 4.0 source
Recorded in: The Principle of Rationality in Collective Decisions", originally published in French, Economie Appliquee, 5 (1952)
“L. Walras first formulated the state of the economic system at any point of time as the solution of a system of simultaneous equations representing the demand for goods by consumers, the supply of goods by producers and the equilibrium condition that supply equal demand on every market.”
Kenneth Arrow (1921–2017) first seen 1954 wikiquote, CC BY-SA 4.0 source
Recorded in: Kenneth J. Arrow and Gerard Debreu. "Existence of an equilibrium for a competitive economy." Econometrica: Journal of the Econometric Society (1954)
Also quoted by: Gérard Debreu
“Perhaps as important is the relation between the existence of solutions to a competitive equilibrium and the problems of normative or .”
Kenneth Arrow (1921–2017) first seen 1954 wikiquote, CC BY-SA 4.0 source
Recorded in: Kenneth J. Arrow and Gerard Debreu. "Existence of an equilibrium for a competitive economy." Econometrica: Journal of the Econometric Society (1954)
Also quoted by: Gérard Debreu
“Government economic policy, like almost any realistic decision problem, has two fundamental characteristics: it is sequential and it is uncertain.”
Kenneth Arrow (1921–2017) first seen 1957 wikiquote, CC BY-SA 4.0 source
Recorded in: Statistics and Economic Policy", Econometrica (1957)
“Decision theory, as it has grown up in recent years, is a formalization of the problems involved in making optimal choices. In a certain sense — a very abstract sense, to be sure — it incorporates among others operations research, theoretical economics, and wide areas of statistics, among others.”
Kenneth Arrow (1921–2017) first seen 1957 wikiquote, CC BY-SA 4.0 source
Recorded in: Decision Theory and Operations Research", Operation Research (1957)
“Strictly speaking, decision theory really is concerned only with the fourth part of the division given above, that is, the determination of the computational methods for optimization. Given the determination of the other three factors―the objective function, the range of policy alternatives, and the model―the ideal picture is that someone, presumable the firm that hires the operations researcher, hands him, on a silver platter, an objective function. By talking to the engineers, or by looking into a few scientific laws, he determines the policy alternatives available and also the model.”
Kenneth Arrow (1921–2017) first seen 1957 wikiquote, CC BY-SA 4.0 source
Recorded in: Decision Theory and Operations Research", Operation Research (1957)
“Speaking very broadly, almost any human action involves choice; the external environment delimits a range of possible actions at any given moment but does not usually reduce that range to a single alternative. The formulation of a theory of human action in some sphere as a theory of choice means its presentation as a functional relation associating with each possible range of alternatives a chosen one among them.”
Kenneth Arrow (1921–2017) first seen 1958 wikiquote, CC BY-SA 4.0 source
Recorded in: Utilities, Attitudes, Choices: A Review Note", Operations Research (1958)
“Learning, as studied by psychologists, closely resembles sequential analysis in some aspects. Learning experiments usually consist of a series of trials in which the subject’s choices are sometimes rewarded and sometimes not. The individual, after making many choices, eventually begins to discriminate between the proper response and the improper one. At some point, presumably, he could terminate the experiment, at least in the sense of disregarding the further observations and making the same choice each time.”
Kenneth Arrow (1921–2017) first seen 1958 wikiquote, CC BY-SA 4.0 source
Recorded in: Utilities, Attitudes, Choices: A Review Note", Operations Research (1958)
“The concept of rationality used throughout this study is at the heart of modern economic analysis, and it cannot be denied that it has great intuitive appeal; but closer analysis reveals difficulties.”
Kenneth Arrow (1921–2017) said by 2017 at the latest wikiquote, CC BY-SA 4.0 source
“If the total number of alternatives is two, the method of majority decision is a social welfare function which satisfies Conditions 2–5 and yields a social ordering of the two alternatives for every set of individual orderings.”
Kenneth Arrow (1921–2017) said by 2017 at the latest wikiquote, CC BY-SA 4.0 source
“If there are at least three alternatives which the members of the society are free to order in any way, then every social welfare function satisfying Conditions 2 and 8 and yielding a social ordering satisfying Axioms I and II must be either imposed or dictatorial.”
Kenneth Arrow (1921–2017) said by 2017 at the latest wikiquote, CC BY-SA 4.0 source
“The idealist doctrine then may be summed up by saying that each individual has two orderings, one which governs him in his everyday actions, and one which would be relevant under some ideal conditions and which is in some sense truer than the first ordering. It is the latter which is considered relevant to social choice, and it is assumed that there is complete unanimity with regard to the truer individual ordering.”
Kenneth Arrow (1921–2017) said by 2017 at the latest wikiquote, CC BY-SA 4.0 source
“From the point of view of seeking a consensus of the moral imperative of individuals, such consensus being assumed to exist, the problem of choosing an electoral or other choice mechanism, or, more broadly, of choosing a social structure, assumes an entirely different form from that discussed in the greater part of this study.”
Kenneth Arrow (1921–2017) said by 2017 at the latest wikiquote, CC BY-SA 4.0 source
“In this aspect, the case for democracy rests on the argument that free discussion and expression of opinion are the most suitable techniques of arriving at the moral imperative implicitly common to all. Voting, from this point of view, is not a device whereby each individual expresses his personal interests, but rather where each individual gives his opinion of the general will.”
Kenneth Arrow (1921–2017) said by 2017 at the latest wikiquote, CC BY-SA 4.0 source
“Invention is here interpreted broadly as the production of knowledge. From the viewpoint of welfare economics, the determination of optimal resource allocation for invention will depend on the technological characteristics of the invention process and the nature of the market for knowledge.”
Kenneth Arrow (1921–2017) first seen 1962 wikiquote, CC BY-SA 4.0 source
Recorded in: Economic Welfare and the Allocation of Resources for Invention", published in The Rate and Direction of Inventive Activity (1962)
“In an ideal socialist economy, the reward for invention would be completely separated from any charge to the users of information. In a free enterprise economy, inventive activity is supported by using the invention to create property rights; precisely to the extent that it is successful, there is an underutilization of the information.”
Kenneth Arrow (1921–2017) first seen 1962 wikiquote, CC BY-SA 4.0 source
Recorded in: Economic Welfare and the Allocation of Resources for Invention", published in The Rate and Direction of Inventive Activity (1962)
“To sum up, we expect a free enterprise economy to underinvest in invention and research (as compared with an ideal) because it is risky, because the product can be appropriated only to a limited extent, and because of increasing returns in use. This underinvestment will be greater for more basic research. Further, to the extent that a firm succeeds in engrossing the economic value of its inventive activity, there will be an underutilization of that information as compared with an ideal allocation.”
Kenneth Arrow (1921–2017) first seen 1962 wikiquote, CC BY-SA 4.0 source
Recorded in: Economic Welfare and the Allocation of Resources for Invention", published in The Rate and Direction of Inventive Activity (1962)
“If the government and other nonprofit institutions are to compensate for the underallocation of resources to invention by private enterprise, two problems arise: how shall the amount of resources devoted to invention be determined, and how shall efficiency in their use be encouraged? These problems arise whenever the government finds it necessary to engage in economic activities because indivisibilities prevent the private economy from performing adequately (highways, bridges, reclamation projects, for example), but the determination of the relative magnitudes is even more difficult here.”
Kenneth Arrow (1921–2017) first seen 1962 wikiquote, CC BY-SA 4.0 source
Recorded in: Economic Welfare and the Allocation of Resources for Invention", published in The Rate and Direction of Inventive Activity (1962)
“The choice among these alternatives in any given case depends on the degree of difficulty consumers have in making the choice unaided, and on the consequences of errors of judgment. It is the general social consensus, clearly, that the laissez-faire solution for medicine is intolerable. The certification proposal never seems to have been discussed seriously.”
Kenneth Arrow (1921–2017) first seen 1963 wikiquote, CC BY-SA 4.0 source
Recorded in: Uncertainty and The Welfare Economics of Medical Care", The American Economic Review (1963)
“According to this point of view, knowledge is, so to speak, a by-product of production or of investment. In research, on the contrary, it can be said that knowledge is the primary product. The distinction between products and by-products is not important for ordinary goods, because in a competitive regime the marginal costs of the two must be equal. But since knowledge does not have the normal properties of an economic good, it is necessary to study each mode of its production.”
Kenneth Arrow (1921–2017) first seen 1965 wikiquote, CC BY-SA 4.0 source
Recorded in: Knowledge, Productivity, and Practice", Bulletin SEDEIS, Etude no. 989, suppl. (1965)
“To conclude, then, we must in a general theory take as our unit a social action, that is, an action involving a large proportion or the entire domain of society. At the most basic axiomatic level, individual actions play little role. The need for a system of public values then becomes evident; actions being collective or interpersonal in nature, so must the choice among them. A public or social value system is essentially a logical necessity.”
Kenneth Arrow (1921–2017) first seen 1967 wikiquote, CC BY-SA 4.0 source
Recorded in: Values and Collective Decision Making", in Peter Laslett and W. G. Runciman (ed.), Philosophy, Politics and Society third Series (1967)
“Because the costs of transmission are nonnegligible, even situations which are basically certain become uncertain for the individual; the typical economic agent simply cannot acquire in a meaningful sense the knowledge of all possible prices, even where they are each somewhere available. Markets are thus costly to use, and therefore the multiplication of markets, as for contingent claims as suggested above, becomes inhibited.”
Kenneth Arrow (1921–2017) first seen 1969 wikiquote, CC BY-SA 4.0 source
Recorded in: The Organization of Economic Activity: Issues Pertinent to the Choice of Market versus Nonmarket Allocation", Joint Economic Committee, United States Congress, The Analysis and Evaluation of Public Expenditures: The PPB…
“I want, however, to conclude by calling attention to a less visible form of social action: norms of social behavior, including ethical and moral codes. I suggest as one possible interpretation that they are reactions of society to compensate for market failures. It is useful for individuals to have some trust in each other's word. In the absence of trust it would become very costly to arrange for alternative sanctions and guarantees, and many opportunities for mutually beneficial cooperation would have to be, foregone.”
Kenneth Arrow (1921–2017) first seen 1969 wikiquote, CC BY-SA 4.0 source
Recorded in: The Organization of Economic Activity: Issues Pertinent to the Choice of Market versus Nonmarket Allocation", Joint Economic Committee, United States Congress, The Analysis and Evaluation of Public Expenditures: The PPB…
“It is difficult to conceive of buying trust in any direct way (though it can happen indirectly, for example, a trusted employee will be paid more as being more valuable); indeed, there seems to be some inconsistency in the very concept. Nonmarket action might take the form of a mutual agreement. But the arrangement of these agreements and especially their continued extension to new individuals entering the social fabric can be costly. As an alternative, society may proceed by internalization of these norms to the achievement of the desired agreement on an unconscious level.”
Kenneth Arrow (1921–2017) first seen 1969 wikiquote, CC BY-SA 4.0 source
Recorded in: The Organization of Economic Activity: Issues Pertinent to the Choice of Market versus Nonmarket Allocation", Joint Economic Committee, United States Congress, The Analysis and Evaluation of Public Expenditures: The PPB…
“Despite the favorable properties of the price system, I am no unrestrained admirer of it. Some of its limits in the urban context will be stressed below. It is not possible, however, to understand the city as an economic problem without first understanding the virtues of the free market system in performing its role of allocating resources.”
Kenneth Arrow (1921–2017) first seen 1970 wikiquote, CC BY-SA 4.0 source
Recorded in: The Effects of the Price System and Market on Urban Economic Development" In K.J. Arrow et al., Urban Processes As Viewed by the Social Sciences (1970)
“The case for equality may be made on other than utilitarian grounds; thus J. Rawls has, argued for maximizing the minimum utility, rather than the sum of utilities, as an ethical criterion, and this criterion would tend toward output equality and therefore strong input progressivity.”
Kenneth Arrow (1921–2017) first seen 1971 wikiquote, CC BY-SA 4.0 source
Recorded in: A Utilitarian Approach to the Concept of Equality in Public Expenditures", The Quarterly Journal of Economics, Vol. 85, No. 3 (Aug., 1971)
“Dynamic analysis may have deeper implications if we depart from the analysis of stationary states. The firm must now serve some additional roles. In the absence of futures markets, the firm must serve as a forecaster and as a bearer of uncertainty. Further, from a general equilibrium point of view, the forecasts of others become relevant to the evaluation of the firm's shares and therefore possibly of the firm's behavior.”
Kenneth Arrow (1921–2017) first seen 1971 wikiquote, CC BY-SA 4.0 source
Recorded in: The Firm in General Equilibrium Theory", in R. Marris and A.Wood (eds.), The Corporate Economy: Growth, Competition, and Innovative Potential (1971)
“In any case the empirical evidence can only be made meaningful with at least a minimum of theoretical analysis.”
Kenneth Arrow (1921–2017) first seen 1972 wikiquote, CC BY-SA 4.0 source
Recorded in: Gifts and Exchanges", Philosophy and Public Affairs (1972)
“While economic theory in general may be defined as the theory of how an economic condition or an economic development is determined within an institutional framework, the deals with how to judge whether one condition can be said to be better in some way than another and whether it is possible, by altering the institutional framework, to achieve a better condition than the present one.”
Kenneth Arrow (1921–2017) first seen 1969 wikiquote, CC BY-SA 4.0 source
Recorded in: Arrow and Hicks (1972) From Nobel Lectures, Economics 1969-1980, Editor Assar Lindbeck, World Scientific Publishing Co., Singapore, 1992 (online)
Also quoted by: John Hicks
“The forces of competition and the tendency to profit-maximization operate to mitigate these differences. However, the basic fact of a personnel investment prevents these counteracting tendencies from working with full force. In the end, we remain with wage differences coupled with tendencies to segregation.”
Kenneth Arrow (1921–2017) first seen 1973 wikiquote, CC BY-SA 4.0 source
Recorded in: The Theory of Discrimination" in Orley Ashenfelter and Albert Rees (eds.), Discrimination in labor markets (1973)
“Let us turn from the epistemological problems of the current decision-maker for society to those in the original position. Individuals are supposed to know the laws of the physical and the social worlds, but not to know who they are or will be. But empirical knowledge is after all uncertain, and even in the original position individuals may disagree about the facts and laws of the universe.”
Kenneth Arrow (1921–2017) first seen 1973 wikiquote, CC BY-SA 4.0 source
Recorded in: Some Ordinalist-Utilitarian Notes on Rawls's Theory of Justice", The Journal of Philosophy, Vol. 70, No. 9 (May 10, 1973)
“To the extent that individuals are really individual, each an autonomous end in himself, to that extent they must be somewhat mysterious and inaccessible to each other. There cannot be any rule that is completely acceptable to all. There must, or so it now seems tome, be the possibility of unadjudicable conflict, which may show itself logically as paradoxes in the process of social decision-making.”
Kenneth Arrow (1921–2017) first seen 1973 wikiquote, CC BY-SA 4.0 source
Recorded in: Some Ordinalist-Utilitarian Notes on Rawls's Theory of Justice", The Journal of Philosophy, Vol. 70, No. 9 (May 10, 1973)
“Once the capital goods prices are known, it is clear that the consumption goods prices are uniquely determined; for each consumption good, the activity chosen will be the one which is cheapest in its use of capital goods, valued at the known capital goods prices. Thus, all balanced growth prices in an indecomposable pure capital model with no joint production are determined by the technology.”
Kenneth Arrow (1921–2017) first seen 1973 wikiquote, CC BY-SA 4.0 source
Recorded in: Kenneth Arrow and David Starrett, "Cost-theoretical and Demand-theoretical Approaches to the Theory of Price Determination", in J. R. Hicks and W. Weber (eds.), Carl Menger and the Austrian School of Economics (1973)
“The members of an economy—the firms, the consumers, the investors, and the government—make choices. To give a common name to them all, I will refer to them as agents, for indeed their most salient characteristic is that they act. That they make choices implies that they have alternatives, that what was chosen was not inevitable but was in fact only one in a range of opportunities. The opportunities available to a consumer are determined by the income he has and the prices he has to pay for commodities of different use-values.”
Kenneth Arrow (1921–2017) first seen 1973 wikiquote, CC BY-SA 4.0 source
Recorded in: Information and Economic Behavior", lecture presented to the Federation of Swedish Industries (1973)
“The economic value of information offers no great mysteries in itself. It is easy to prove that one can always do better, whether as a producer or as a consumer, by basing decisions on a signal, provided the signal and the economic variables are not independently distributed. But this remark has an implication for economic decisions; the economic agent is willing to pay for information, for signals.”
Kenneth Arrow (1921–2017) first seen 1973 wikiquote, CC BY-SA 4.0 source
Recorded in: Information and Economic Behavior", lecture presented to the Federation of Swedish Industries (1973)
“I expect that ethical codes and informal nonprice organizations will continue to evolve where needed, for example in the control of product quality, to permit transactions which would be impossible because of differential information in markets where all individuals behaved in a purely selfish manner. The evolution of ethical codes is facilitated by the fact that productive units are organizations, not individuals, and individuals are mobile among these organizations.”
Kenneth Arrow (1921–2017) first seen 1973 wikiquote, CC BY-SA 4.0 source
Recorded in: Information and Economic Behavior", lecture presented to the Federation of Swedish Industries (1973)
“May I remark, especially for the benefit of economists, that consideration of the medical care market and of the insurance situation represents not only an application of economic principles but also a reconsideration of some of the principles that we take for granted.”
Kenneth Arrow (1921–2017) first seen 1973 wikiquote, CC BY-SA 4.0 source
Recorded in: Theoretical Issues in Health Insurance", Noel Buxton Lecture for 1973 at the University of Essex, published in 1976.
“We have the possibility of diverting other resources to the medical field, but that means some subtraction somewhere else. We are sufficiently close to full employment that there is no great amount of unused resources to draw upon for this purpose. We do, of course, draw to some extent upon doctors trained in other countries, but quantitatively speaking, this is not very much of a help. The basic scarcity problem cannot be avoided.”
Kenneth Arrow (1921–2017) first seen 1973 wikiquote, CC BY-SA 4.0 source
Recorded in: Theoretical Issues in Health Insuarance", Noel Buxton Lecture for 1973 at the University of Essex, published in 1976.
“There is little warrant for the belief that we know the laws of history well enough to make projections of any great reliability. Most of the turning points of history, great and small, were surprises to both their participants and the analysts of the day, whatever their doctrine.”
Kenneth Arrow (1921–2017) first seen 1974 wikiquote, CC BY-SA 4.0 source
Recorded in: Capitalism, for Better or Worse" In L. Silk (Ed.) Capitalism: The Moving Target (1974)
“From a theoretical viewpoint, one might say that the market is in a strange sort of equilibrium; there is some shadowy sort of price at which supply and demand are equated at zero. But this price is not performing much of a signaling function.”
Kenneth Arrow (1921–2017) first seen 1974 wikiquote, CC BY-SA 4.0 source
Recorded in: Limited Knowledge and Economic Analysis", American Economic Review (1974)
“The terms of trade with the outside world should not be regarded as freely given to the firm. In a world with a large number of commodities, even knowing the prices of relevant commodities involves the costly acquisition of certain kinds of information.”
Kenneth Arrow (1921–2017) first seen 1974 wikiquote, CC BY-SA 4.0 source
Recorded in: Limited Knowledge and Economic Analysis", American Economic Review (1974)
“An organization is typically composed of changing individuals. Now any individual generally has access to many communication channels, of which this particular organization is only one. In particular, education is such a channel. Thus, the organization is getting the benefit of a considerable amount of information which is free to it.”
Kenneth Arrow (1921–2017) first seen 1974 wikiquote, CC BY-SA 4.0 source
Recorded in: On the Agenda of Organizations", in R. Marris (ed.), The Corporate Society (1974)
“The aim of achieving an equal distribution of political power requires a restriction on the inequalities of wealth and income.”
Kenneth Arrow (1921–2017) first seen 1974 wikiquote, CC BY-SA 4.0 source
Recorded in: Taxation and Democratic Values", The New Republic (November 1, 1974)
“The domain of the theory of social choice is not in principle the same as that of a theory of justice. In some directions, it is clearly wider, since it is supposed to cover all decision that must be made collectively. On the other hand, it is possible to hold that propositions about distributive justice are not necessarily propositions about collective decisions.”
Kenneth Arrow (1921–2017) first seen 1978 wikiquote, CC BY-SA 4.0 source
Recorded in: Extended Sympathy and the Possibility of Social Choice", Philosophia (1978)
“As indicated, I retain the view that the outcome should be an ordering. Presumably, the weakest possible outcome of a constitution would be a choice function, a mapping of each feasible set of alternatives into a chosen subset. Again, one cannot avoid some consistency relations among the choices from different feasible sets. Various conditions weaker than a full ordering have been proposed, but, in my judgement, they do not lead to interesting conclusions. Unless they are implausibly weak, these conditions do not lead to noticeably greater freedom in the selection of social choice procedures.”
Kenneth Arrow (1921–2017) first seen 1978 wikiquote, CC BY-SA 4.0 source
Recorded in: Extended Sympathy and the Possibility of Social Choice", Philosophia (1978)
“What can be concluded? We cannot be sure that the principles of democracy and socialism are compatible until we can observe a viable society following both principles. But there is no convincing evidence or reasoning which would argue that a democratic-socialist movement is inherently self-contradictory. Nor need we fear that gradual moves in the direction of increasing government intervention will lead to an irreversible move to “serfdom.”
Kenneth Arrow (1921–2017) first seen 1978 wikiquote, CC BY-SA 4.0 source
Recorded in: quoted in "Capitalism, Socialism, and Democracy" (symposium), Commentary (1978)
“Social theories are also social facts. Whatever explanatory value the “Marxist” or “conservative” models may have, they surely cannot be regarded as established with any degree of firmness. Yet excessive confidence in one or the other may have serious consequences. If “conservatives” believe too strongly that any move to socialism undermines democracy, then they may indeed act in accordance with the “Marxist” model, and vice versa. (Robert Merton long ago alerted us to “self-confirming” and “self-denying” social theories; here we have a pair of rival theories which are “other-confirming.”)”
Kenneth Arrow (1921–2017) first seen 1978 wikiquote, CC BY-SA 4.0 source
Recorded in: quoted in "Capitalism, Socialism, and Democracy" (symposium), Commentary (1978)
“To sum up, the basic values that motivated my preference for socialism over capitalism were (1) efficiency in making sure that all resources were used, (2) the avoidance of war and other political corruptions of the pursuit of profits, (3) the achievement of freedom from control by a small elite, (4) equality of income and power, and (5) encouragement of cooperative as opposed to competitive motives in the operation of society.”
Kenneth Arrow (1921–2017) first seen 1978 wikiquote, CC BY-SA 4.0 source
Recorded in: A Cautious Case for Socialism", Dissent (Fall 1978)