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Kenneth Arrow

137 quotes

“There are two approaches to a theory of general equilibrium in an imperfectly competitive environment; most writers who touch on public policy questions implicitly accept one or the other of these prototheories without always recognizing that they have made such a choice. One assumes that all transactions are made according to the price system, that is, the same price is charged for all units of the same commodity; this is the monopolistic competition approach. The alternative approach assumes unrestricted bargaining; this is the game theory approach. The first might be deemed appropriate if the costs of bargaining were high relative to the costs of ordinary pricing, while the second assumes costless bargaining.”
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…
“Property systems are in general not completely self-enforcing. They depend for their definition upon a constellation of legal procedures, both civil and criminal. The course of the law itself cannot be regarded as subject to the price system. The judges and the police may indeed be paid, but the system itself would disappear if on each occasion they were to sell their services and decisions. Thus the definition of property rights based on the price system depends precisely on the lack of universality of private property and of the price system. This ties in with the third hypothesis put forward in section I. The price system is not, and perhaps in some basic sense cannot be, universal. To the extent that it is incomplete, it must be supplemented by an implicit or explicit social contract. Thus one might loosely say that the categorical imperative and the price system are essential complements.”
Kenneth Arrow (1921–2017) first seen 1972 wikiquote, CC BY-SA 4.0 source
Recorded in: Gifts and Exchanges", Philosophy and Public Affairs (1972)
“Nevertheless, when all due allowances are made, the coherence of individual economic decisions is remarkable. As incomes rise and demands shift, for example, from food to clothing and housing, the labor force and productive facilities follow suit. Similarly, and even more surprising to the layman, there is a mutual interaction between shifts in technology and the allocation of the labor force. As technology improves exogenously, through innovations, the labor made redundant does not become permanently unemployed but finds its place in the economy. It is truly amazing that the lessons of both theory and more than a century of history are still so misunderstood. On the other hand, a growing accumulation of instruments of production raises real wages and in turn induces a rise in the prices of labor-intensive commodities relative to those which use little labor. All these phenomena show that by and large and in the long view of history, the economic system adjusts with a considerable degree of smoothness and indeed of rationality to changes in the fundamental facts within which it operates.”
Kenneth Arrow (1921–2017) first seen 1972 wikiquote, CC BY-SA 4.0 source
Recorded in: General Economic Equilibrium: Purpose, Analytic Techniques, Collective Choice", Les Prix Nobel en 1972 (1973)
“My own interest first centered on the relations between Pareto efficiency and competitive equilibrium. In particular, there was considerable discussion among economists in the late 1940’s about the inefficiencies resulting from rent control and different proposals for arriving at the efficiency benefits of a free market by one or another transition route. Part of the informal efficiency arguments hinged on the idea that under rent control people were buying the wrong kind of housing, say, excessively large apartments. It struck me that an individual bought only one kind of housing, not several. The individual optima were at corners, and therefore one could not equate marginal rates of substitution by going over to a free market. Yet diagrammatic analysis of simple cases suggested to me that the traditional identification of competitive equilibrium and Pareto efficiency was correct but could not be proved by the local techniques of the differential calculus.”
Kenneth Arrow (1921–2017) first seen 1972 wikiquote, CC BY-SA 4.0 source
Recorded in: General Economic Equilibrium: Purpose, Analytic Techniques, Collective Choice", Les Prix Nobel en 1972 (1973)
“In fact, is is not a mere empirical accident that not all the contingent markets needed for efficiency exist but a necessary fact with deep implications for the workings and structure of economic institutions. Roughly speaking, information about particular events, even after they have occurred, is not spread evenly throughout the population. Two people cannot enter into a contract contingent on the occurrence of a certain event or state if only one of them in fact will know that the event has occurred. A particular example of this is sometimes known as “moral hazard” in the insurance and economic literature. The very existence of insurance will change individual behavior in the direction of less care in avoiding risks.”
Kenneth Arrow (1921–2017) first seen 1972 wikiquote, CC BY-SA 4.0 source
Recorded in: General Economic Equilibrium: Purpose, Analytic Techniques, Collective Choice", Les Prix Nobel en 1972 (1973)
“General competitive equilibrium above all teaches the extent to which a social allocation of resources can be achieved by independent private decisions coordinated through the market. We are assured indeed that not only can an allocation be achieved, but the result will be Pareto efficient. But, as has been stressed, there is nothing in the process which guarantees that the distribution be just. Indeed, the theory teaches us that the final allocation will depend on the distribution of initial supplies and of ownership of firms. If we want to rely on the virtues of the market but also to achieve a more just distribution, the theory suggests the strategy of changing the initial distribution rather than interfering with the allocation process at some later stage.”
Kenneth Arrow (1921–2017) first seen 1972 wikiquote, CC BY-SA 4.0 source
Recorded in: General Economic Equilibrium: Purpose, Analytic Techniques, Collective Choice", Les Prix Nobel en 1972 (1973)
“The conventional view among economists is that education adds to an individual's productivity and therefore increases the market value of his labor. From the viewpoint of formal theory, it does not matter how the student's productivity is increased, but implicitly it is assumed that the student receives cognitive skills through his education. Educators, on the other hand, have long felt that the activity of education is a process of socialization, with the latent content of the process—the acquisition of skills such as the carrying out of assigned tasks, getting along with others, regularity, punctuality, and the like—being at least as important as the manifest objectives of conveying information. This last doctrine has been revived by radical economists, though with a negative rather than a positive valuation. But from the viewpoint of economic theory, the socialization hypothesis is just as much a human capital theory as the cognitive skill acquisition hypothesis. Both hypotheses imply that education supplies skills that lead to higher productivity. I would like to present a very different view. Higher education, in this model, contributes in no way to superior economic performance; it increases neither cognition nor socialization. Instead, higher education serves as a screening device in that it sorts out individuals of differing abilities, thereby conveying information to the purchasers of labor.”
Kenneth Arrow (1921–2017) first seen 1973 wikiquote, CC BY-SA 4.0 source
Recorded in: Higher Education as a Filter", Journal of Public Economics (1973)
“There is also one particularly needed elaboration of the model (which is not to say that it doesn't cry out for elaboration in many other directions). This is the relation between college filtering and on-the-job filtering. Once an employee has been hired, the employer can gradually draw on more directly obtained information to determine his productivity. However, this filtering may be costly. To the extent that the employer does filter and does so accurately, the Value of the college filter is reduced. The employer pays the average product of a group with given educational achievement only during the period before his own filter has become effective. Conversely, however, an increase in the college population will mean (and has meant) a depreciation in the quality of non-college students (this is not necessarily the same as a decrease in the quality of college students).”
Kenneth Arrow (1921–2017) first seen 1973 wikiquote, CC BY-SA 4.0 source
Recorded in: Higher Education as a Filter", Journal of Public Economics (1973)
“The problem of interpersonal comparison of utilities seems to bother economists more than philosophers. As already indicated, utility or satisfaction or any other similar concept appears in economic theory as an explanation of individual behavior, for example, as a consumer. Specifically, it is hypothesized that the individual chooses his consumption so as to maximize his utility, subject to the constraints imposed by his budget. But, for this purpose, a quantitatively measurable utility is a superfluous concept. All that is needed is an ordering, that is, a statement for each pair of consumption patterns as to which is preferred.”
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)
“We find that capitalism, like any very complex system, contains within itself contradictory tendencies, but there is no reason to suppose they are fatal, at least in the foreseeable future. We do find implied in these contradictions some social tasks: the completion of the tasks involved in the achievement of macroeconomic stability, the redistribution of income and power to improve the sense of justice in the arrangements of society, by which I mean the inseparable elements of the liberty and equality of individuals, and, perhaps hardest, the increase in the sense of individual and local control over one's destiny in the workplace and the small society. These aims are mutually reinforcing, not competitive.”
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)
“I think we may safely agree that the notion of democracy has two components, both indispensable: 1) the securing of the freedom of the individual so that he may develop his individual potential; 2) a symmetric mutual respect of the individuals in the society for each other. These aims are, as has been frequently remarked, partly competitive; but, it must also be stressed, they are to a very considerable extent complementary. A hierarchical society marked by great inequalities in power and esteem will surely not tolerate the liberties of those most disadvantaged. Conversely a world in which individuals have their liberties tightly confined must be one in which there are large inequalities of power.”
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)
“Let us start with elementals. Income and property are certainly the instruments of an individual’s freedom. Clearly the domain of choice is enhanced by increases in those dimensions. It is true not merely in the sense of expanded consumer choice but also in broader contexts of career and opportunity to pursue one’s own aims and to develop one’s own potential. Unequal distribution of property and of income is inherently an unequal distribution of freedom. Thus a redistribution of income, to the extent that it reduces the freedom of the rich, equally increases that of the poor. Their control of their lives is increased.”
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)
“This is by no means a "formal" matter. Clearly, the intuition behind the continuity requirement is a small step in the direction of utilitarian ethics; even the worst-off member of the society might be made to suffer if there is enough benefit to others. The assumption of diminishing marginal utility implies with regard to usual policy alternatives that there are better ways of improving the lot of better-off members than by hurting the worst-off. But there is one striking case, of great practical importance, where our intuition is in favor of utilitarianism is some form as against any minimax rule. I refer to allocation over time. Typically, we expect future generations to be better off than we are. Should we save for them either directly or in the form of public investments? A maximin rule would surely say no. But if investment is productive, so that, in terms of goods, the next generation gains more than we lose, we usually feel that some investment is worthwhile even though the recipients will be better off than we are.”
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)
“The incompleteness of property rights in general creates well-known problems in welfare economics, being in fact the basic component of externalities. In particular, markets for future commitments are relatively under-developed compared with those for the present or immediate future. Individuals have to supply for themselves expectations as to future developments in order to make decisions with consequences extending into the future, e.g., investments. These expectations, for example of prices or of supply availabilities, are not "property," but they influence the use of property and are taken into account in the present legal system. For example, an obligation to sell a product for the next few years at a given price is understood in the law to hold only if conditions do not change in a strongly unexpected way; this understanding does not require explicit statement.”
Kenneth Arrow (1921–2017) first seen 1978 wikiquote, CC BY-SA 4.0 source
Recorded in: Nozick's entitlement theory of justice", Philosophia (1978)
“If markets were sufficiently complete, with all futures periods and all uncertain contingencies already provided for in the contracts, the concept of property would cease to be problematic. All decisions would have been made in advance, and there would be no further questions of transfers to treat as just or unjust. Because in fact many of these markets do not exist, there are direct non-market relations which affect individuals' levels of satisfaction. Voluntary transfers become possible, but not all conceivable transfers can be made. Hence, voluntary transfers become biassed in direction, and the possible injustice of the whole system of transfers must be recognized.”
Kenneth Arrow (1921–2017) first seen 1978 wikiquote, CC BY-SA 4.0 source
Recorded in: Nozick's entitlement theory of justice", Philosophia (1978)
“Democracy is a form of government in which political decisions are ultimately governed by the bulk of the adult population, though, of course, usually indirectly through election of representatives. It is fair to say that political liberties, freedom of speech and of the press, are so closely inherent in meaningful democracy as to constitute part of the definition. But one can perfectly well imagine democracy without freedom of religion or in a society where every move is reported and internal passports are needed. Whether or not these restrictions are incompatible with the persistence of democracy is a contingent question, not a tautologous consequence of a definition.”
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)
“The comparative economic efficiency of capitalism and socialism remains one of the most controversial areas. The classical socialist argument is that the anarchy of production under capitalism leads to great wastage. An appeal to the virtues of the price system is, in fact, only a partial answer to this critique. The central argument, which implies the efficiency of a competitive economic system, presupposes that all relevant goods are available at prices that are the same for all participants and that supplies and demands of all goods balance. Now virtually all economic decisions have implications for supplies and demands on future markets. The concept of capital, the very root of the term “capitalism,” refers to the setting-aside of resources for use in future production and sale. Hence, goods to be produced in the future are effectively economic commodities today. For efficient resource allocation, the prices of future goods should be known today. But they are not. Markets for current goods exist and enable a certain coherence between supply and demand there. But very few such markets exist for delivery of goods in the future. Hence, plans made by different agents may be based on inconsistent assumptions about the future. Investment plans may be excessive or inadequate to meet future demands or to employ the future labor force.”
Kenneth Arrow (1921–2017) first seen 1978 wikiquote, CC BY-SA 4.0 source
Recorded in: A Cautious Case for Socialism", Dissent (Fall 1978)
“Ironically, the current conservative model explaining the supposed association of capitalism and democracy relates to the Marxist as a photographic negative to a positive. It too suggests that the political “superstructure” is determined by the “relations of production.” The conservative model contrasts the dispersion of power under capitalist democracy with its concentration under socialism. Political opposition requires resources. The multiplicity of capitalists implies that any dissenting voice can find some support. Under socialism, the argument goes, the controlling political faction can deny its opponents all resources and dismiss them from their employment. This theoretical argument presupposes a monolithic state. It is something of a chicken-and-egg proposition. If the democratic legal tradition is strong, there are many sources of power in a modern state. Adding economic control functions may only increase the diversity of interests within the state and therefore alternative sources of power. It is notoriously harder for the government to regulate its own agencies than private firms. Socialism may easily offer as much pluralism as capitalism. The overpowering force in all these arguments is the empirical evidence of the Soviet Union and the other Communist countries, and it is strong. But the contrary proposition, that capitalism is a positive safeguard for democracy, is hardly a reasonable inference from experience. The example of Nazi Germany shows that no amount of private enterprise prevents the rise of totalitarianism. Indeed, it is hard to see that capitalism formed a significant impediment. Nor is Nazi Germany unique; Fascist Italy, Franco’s Spain, and the recurrent Latin American dictatorships are illustrative counterexamples to the proposition that capitalism implies democracy.”
Kenneth Arrow (1921–2017) first seen 1978 wikiquote, CC BY-SA 4.0 source
Recorded in: A Cautious Case for Socialism", Dissent (Fall 1978)
“I have argued that forecasts will be based on more information than is contained in econometric models and in general on information differing from agent to agent. I also want to argue that they will not necessarily use all the information contained in an econometric model. In fact, the two propositions are intimately linked though they seem to move in opposite directions. We have to assume that information-processing ability is scarce. As I have already said, this is one of the main justifications for and explanations of a decentralized economy. But then it follows that an individual concentrates on acquiring the information most useful to him and will have to crowd out the information which is less useful. In particular, information that is broadly pertinent to the economy as a whole may have very little predictive power for the future of an individual.”
Kenneth Arrow (1921–2017) first seen 1978 wikiquote, CC BY-SA 4.0 source
Recorded in: The Future and the Present in Economic Life", Economic Inquiry (1978)
“The meaning of information is precisely a reduction in uncertainty. From the viewpoint of economics or decision theory, uncertainty is relevant because it concerns the consequences of decisions. An individual making a decision may be supposed to be choosing one among a set of feasible alternatives. In general, these alternatives are themselves plans extending in time, and he will want to choose the one that yields the most satisfying consequences. These may be profits in successive periods for a business firm, or they may be other satisfactions, such as consumption, power, bequests, or interesting challenges. It can be assumed that the individual compares the entire set of consequences deriving from each alternative in his decision set with those of the others and chooses the preferred one.”
Kenneth Arrow (1921–2017) first seen 1979 wikiquote, CC BY-SA 4.0 source
Recorded in: The Economics of Information" in M.L. Dertouzos and J. Moses (Eds.) The Computer Age: A Twenty-Year View (1979)
“If the state of information (the set of signals received) is given and constant, then optimal choice is a problem of decision making under a given uncertainty, a situation that has been the subject of considerable analysis in the last thirty years. The problems of the economics of information proper arise when the probability distribution of states of the world is a variable. In the language adopted here, the signals received can vary. The existence of signals creates two important possibilities for the improvement of decision making. The first is taking advantage of the existence of signals. If the individual knows that a signal will be received before the decision has to be made, his optimal choice should be a function of the signal. We can think, alternatively but equivalently, of making the decision after the receipt of the signal and basing it on the probability distributions of consequences conditional on the signal, or of making the decision in advance for all possible values of the signal.”
Kenneth Arrow (1921–2017) first seen 1979 wikiquote, CC BY-SA 4.0 source
Recorded in: The Economics of Information" in M.L. Dertouzos and J. Moses (Eds.) The Computer Age: A Twenty-Year View (1979)
“The need for coordination has two basic causes: the various members (e.g., production units) are competing for a common pool of resources, financial and material; and different decisions complement or substitute for each other. For both reasons, the effectiveness of decisions made by one participant is influenced by the decisions of another. With limitations on the flow of information, the decisions themselves cannot be coordinated. That would require transferring all the information available, precisely what is to be avoided. It has been emphasized earlier that when information will be available, the individual should choose a decision function, a policy or strategy that determines what his actual decision should be for each possible signal he receives. Hence, ideally, in an organization there should be prior agreement on decision functions or strategies for all participants.”
Kenneth Arrow (1921–2017) first seen 1979 wikiquote, CC BY-SA 4.0 source
Recorded in: The Economics of Information" in M.L. Dertouzos and J. Moses (Eds.) The Computer Age: A Twenty-Year View (1979)
“The competitive system can be viewed as an information and decision structure. Initially, each agent in the economy has a very limited perspective. The household knows only its initial holdings of goods (including labor power) and the satisfactions it could derive from different combinations of goods acquired and consumed. The firm knows only the technological alternatives for transforming inputs into outputs. The “communication” takes the form of prices. If the correct (equilibrium) prices are announced, then the individual agents can determine their purchases and sales so as to maximize profits or satisfactions. The prices are then, according to the pure theory, the only communication that needs to be made in addition to the information held initially by the agents. This makes the market system appear to be very efficient indeed; not only does it achieve as good an allocation as an omniscient planner could, but it clearly minimizes the amount of communication needed.”
Kenneth Arrow (1921–2017) first seen 1979 wikiquote, CC BY-SA 4.0 source
Recorded in: The Economics of Information" in M.L. Dertouzos and J. Moses (Eds.) The Computer Age: A Twenty-Year View (1979)
“Any argument seeking to establish the presence of irrational economic behavior always meets a standard counterargument: if most agents are irrational, then a rational individual can make a lot of money; eventually, therefore, the rational individuals will take over all the wealth. Hence, rational behavior will be the effective norm. There are two rebuttals to the counterargument. (1) Not all arbitrage possibilities exist. For example, corporate profits, even though they may be down, are very distinctly positive in real terms after all necessary adjustments, including taxes. Yet there seems no way by which the average investor in corporate securities can get a positive real rate of return. (2) More important, if everyone else is “irrational,” it by no means follows that one can make money by being rational, at least in the short run. With discounting, even eventual success may not be worthwhile. Consider, for example, a firm that engages in research and development which depresses the current profit and loss statement. Irrational investors look only at this information, and therefore the price of the stock is below the expected value of future dividends based on the profitable outcomes of the research and development. In a perfectly working market with rational individuals, stock prices would gradually rise as the realization date approached, but prices in the actual market would be constant. A rational investor would understand the future value of the stocks, but he or she could not realize any part of this gain during the gestation period. Although the rational investor may get rewarded eventually if the stock is held long enough, he or she is losing liquidity during an intervening period which may be long. Hence, the demand for the stock even by the rational buyers will be depressed. As Keynes argued long ago, the value of a security depends in good measure on other people’s opinions.”
Kenneth Arrow (1921–2017) first seen 1982 wikiquote, CC BY-SA 4.0 source
Recorded in: Risk Perception in Psychology and Economics", Economic Inquiry (1982)
“The Soviet Union and its satellite Socialist countries in Eastern Europe have typically avoided unemployment and business cycles, except as they are induced through their trade with the Western World. But on the other hand they are clearly inefficient and wasteful, at least relative to the West. As repeated statements by the socialist economists themselves make clear, the excessive concentration of economic decision-making is a prime cause of the inefficiency. There are recurring demands for "liberalization," even by the highest authorities (Yuri Andropov, the effective head of the Soviet Union, being the latest example), but they are responded to only mildly or not at all. Clearly, a really major step toward decentralization of economic power, to the plant managers or the workers themselves, is perceived as a threat to the system.”
Kenneth Arrow (1921–2017) first seen 1983 wikiquote, CC BY-SA 4.0 source
Recorded in: The Economics of 1984." In P. Stansky (Ed.) On Nineteen Eighty-Four (1983)
“Not only is it possible to devise complete models of the economy on hypotheses other than rationality, but in fact virtually every practical theory of macroeconomics is partly so based. The price- and wage- rigidity elements of Keynesian theory are hard to fit into a rational framework, though some valiant efforts have been made. … But if the Keynesian model is a natural target of criticism by the upholders of universal rationality, it must be added that monetarism is no better. I know of no serious derivation of the demand for money from a rational optimization. … The use of rationality in these arguments is ritualistic, not essential.”
Kenneth Arrow (1921–2017) first seen 1986 wikiquote, CC BY-SA 4.0 source
Recorded in: Rationality of Self and Others in an Economic System", The Journal of Business (1986)
“The problem I have with utilitarianism is not that it is excessively rational, but that the epistemological foundations are weak. My problem is: What are those objects we are adding up? I have no objection to adding them up if there's something to add. But the one thing I retain from utilitarianism is that, basically, judgements are based on consequences. Certainly that's the sort of thing we do in the theory of the single individual under uncertainty; you make sure utility is defined only over the consequences. I view rights as arrangements which may help you in achieving a higher utility level.”
Kenneth Arrow (1921–2017) first seen 1987 wikiquote, CC BY-SA 4.0 source
Recorded in: interview with J. S. Kelly, "An Interview with Kenneth J. Arrow", Social Choice and Welfare (1987)
“The tension between chaotic behavior and perfect foresight was observed. Start with an equilibrium dynamics of a standard type derived from the hypothesis that future prices are predicted perfectly. Suppose that the solution to the difference equations characterizing the solution exhibits chaotic behavior. Is it realistic to assume that the future, even though deterministic, is in fact predictable? Clearly, part of the lessons drawn by natural scientists, especially meteorologists, from nonlinear dynamics is precisely the opposite; chaotic behavior implies that small errors of observation in the starting position may lead to virtually total unpredictability after some period of time. This creates no difficulties of consistency when the predictor is not part of the system being predicted. But when the predictors are the economic agents being examined, there is a fundamental inconsistency. This epistemological antinomy is reinforced by the empirical observation that actual behavior of prices of assets such as securities could never reasonably have been predicted; if it had, there would have been much more buying or selling at earlier stages.”
Kenneth Arrow (1921–2017) first seen 1987 wikiquote, CC BY-SA 4.0 source
Recorded in: Workshop on the Economy as an Evolving Complex System: Summary," in P. W. Anderson, K. J. Arrow and D. Pines (eds.) The Economy as an Evolving Complex System: The Proceedings of the Evolutionary Paths of the Global Econ…
“The implications for planning are ambiguous. On the one hand, the optimal allocation under increasing returns will not be obtained under free markets. In fact, as I have already remarked, the competitive equilibrium is not even viable, and the outcome will be some kind of imperfect competition. But optimal allocation under increasing returns is difficult. For one thing, the optimisation requires the use of integer programming, a procedure intrinsically more complex than linear programming, and impossible to carry out for large systems even with the most powerful computers. Even more serious are the data demands. The information needed is widely dispersed among the industries and cannot be effectively communicated. It is for these reasons that decentralised decision-making with some element of monopoly is likely to be more efficient.”
Kenneth Arrow (1921–2017) first seen 1988 wikiquote, CC BY-SA 4.0 source
Recorded in: Presidential Address: General Economic Theory and the Emergence of Theories of Economic Development" in K.J. Arrow (Ed.), The Balance between Industry and Agriculture in Economic Development, Volume 1: Basic Issues (198…
“Unfortunately, the word 'learning' is a very general word. It isn't a very specific theory and we can have a lot of learning models, and it's unlikely that any one is going to track. When you talk about learning, you talk about the human mind adapting to conditions, and we haven't nailed that down very well. This is always an objection to the whole idea of bounded rationality. Not that it's wrong, but if it's right, it doesn't actually tell you what to do. Rationality is unique. That isn't really quite true, but at least under many circumstances it is. To say that we're not at the top of a hill gives you a lot of variety as to where you might be. So the problem with bounded rationality is not that it's wrong. On the contrary, I think it's very apt to be correct. It's just that its predictions are a lot more vague than those implied by rationality. At the moment, I don't know what to do about that.”
Kenneth Arrow (1921–2017) first seen 1995 wikiquote, CC BY-SA 4.0 source
Recorded in: quoted in "Interview with Kenneth Arrow" (December 1, 1995)
“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. This is an elaboration of the idea of the learning model. The learning model story takes off from psychology, but the adaptive processes take off from biology and physics. They have the same story. One thing it does suggest in some sense is that we have to be more modest in what we claim.”
Kenneth Arrow (1921–2017) first seen 1995 wikiquote, CC BY-SA 4.0 source
Recorded in: quoted in "Interview with Kenneth Arrow" (December 1, 1995)
“Child care has grown up under different circumstances than education and probably for a mixture of reasons, good and bad. There are many systems of child care, some private, some public. As compared with primary and secondary education, there is clearly less need for coordination. The sequencing of classes is much less important. It would appear that the ability of parents to monitor the conduct of the child care activity is much greater because the activity is much closer to everyday experience and knowledge. Most of the informational and structural arguments for the public supply of education are absent in the case of child care. Reputation and experience may suffice for adequate monitoring.”
Kenneth Arrow (1921–2017) first seen 1996 wikiquote, CC BY-SA 4.0 source
Recorded in: Information, Responsibility, and Human Services," in V. R. Fuchs (ed.), Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America (1996)
“Various medical groups are continually putting out advice as to health-inducing behavior (diet, exercise, and so forth). Individuals who follow this advice will reduce their demand for medical services. An extreme version is the campaign of the American Dental Association for fluoridation of water, a measure designed to reduce cavities and so the demand for dental services. There is also a logical problem. How does the relatively small group of physicians acquire power? In a democratic system, political power derives from numbers or from wealth. While physicians are certainly relatively well off, they do not have the concentration of wealth of many industries. Their power, it seems to me, is derived from moral authority. It is derived from the same professional respect that we are trying to explain. Indeed, when the American Medical Association came into conflict with either the retired or with the business interests that bought medical plans, the weakness of its power base quickly became apparent.”
Kenneth Arrow (1921–2017) first seen 2001 wikiquote, CC BY-SA 4.0 source
Recorded in: Reflections on the reflections", Journal of Health Politics, Policy, and Law (2001)
“I don't know which way human psychology will go wrong. We have a world in which there is uncertainty. There are new technologies. And one of the problems is that we do things today with a thought to the future. 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. That's a simple theory, one of many simple theories -- theories that people agree on and that don't, in a fundamental way, change. But every once in a while there is unemployment, and wages will drop, and there will be several different interpretations.”
Kenneth Arrow (1921–2017) first seen 2009 wikiquote, CC BY-SA 4.0 source
Recorded in: quoted in Conor Clarke, An Interview with Kenneth Arrow, Part One (2009)
“There are information asymmetries in this story. Health insurance is limping along. It's limited in scope, and then you other consequences. Insurance companies have high premiums to protect themselves. The ones who come to the insurance company are sicker and the people have to pay more. You have adverse selection. You have moral hazard. And the doctor does what's on the safe side -- defensive medicine -- without regard to cost. These are fundamental conditions that make health insurance difficult. You have some things that help. Some doctors understand that they shouldn't abuse the system. But you still see problems in the way doctors behave towards patients. They goof off. Sometimes it's too much work. Some things are difficult and risky to diagnose.”
Kenneth Arrow (1921–2017) first seen 2009 wikiquote, CC BY-SA 4.0 source
Recorded in: quoted in Conor Clarke, An Interview with Kenneth Arrow, Part Two (2009)
“We don't have much time left. We are moving towards temperature increases of around two degrees Celsius, which is going to have consequences in the tropics, and we will lose things like glaciers. That's not a theory; it's happening right now. It's not a prediction; it's happening right now. But you just sightsee near those glaciers. But the glaciers are a big source of water. And on the questions of water, in California we store our water in a snowpack. When that's gone, the rain will be the same but it won't accumulate. With warming temperatures the snowpack will not work. It might be possible to substitute with dams, but that's complicated. This is conjoined with a big energy problem and I think that we really have to encourage development in this area. Just waiting for technological improvement won't work. We need to encourage it.”
Kenneth Arrow (1921–2017) first seen 2009 wikiquote, CC BY-SA 4.0 source
Recorded in: quoted in Conor Clarke, An Interview with Kenneth Arrow, Part Three (2009)
“There’s a famous Churchill quote: “democracy is the worst form of government, except for all the others.” That applies to regulation as well. In the late 1800s, we had a natural monopoly: railroads. The government created a regulatory enterprise – the Interstate Commerce Commission – and of course it was captured. But it still made a difference. I think we just have to accept that capture does occur, but it’s limited. The Federal Trade Commission, for example, is a pretty active body. Monopolies have been broken up. The AT&T telephone monopoly was broken up in 1982 – Stigler was still writing about regulatory capture then. AT&T was a classic monopoly, but a pretty benevolent one. It delivered good service – rates were too high, but not by that much. It didn’t necessarily pass on value to the consumers, but Bell Labs were a source of great innovative function. Nevertheless, it was broken up by antitrust measures, brought on by government. So there is regulatory capture, but it is by no means complete. Regulations do play a role. One example of non-regulatory capture fighting against effective regulation was during the run-up to the 2008 crash, when several officials argued for CDOs to be regulated, which means they would have had to meet certain requirements of transparency. This was not accepted. I’m not saying the crash could have been avoided if that happened, but that would have made a big difference.”
Kenneth Arrow (1921–2017) first seen 2016 wikiquote, CC BY-SA 4.0 source
Recorded in: quoted in "There Is Regulatory Capture, But It Is By No Means Complete" (2016)