Kenneth Arrow

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Kenneth Arrow, 2004

Kenneth Joseph Arrow (born August 23, 1921) is an American economist, Professor Emeritus of Economics in Stanford, and joint winner of the Nobel Memorial Prize in Economics with John Hicks in 1972.


  • 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.
    • Arrow, Kenneth J., and Gerard Debreu. "Existence of an equilibrium for a competitive economy." Econometrica: Journal of the Econometric Society (1954): p. 265
  • Perhaps as important is the relation between the existence of solutions to a competitive equilibrium and the problems of normative or welfare economics.
    • Arrow, Kenneth J., and Gerard Debreu. "Existence of an equilibrium for a competitive economy." Econometrica: Journal of the Econometric Society (1954): p. 265
  • 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 welfare theory 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.
    • Arrow and Hicks (1972) From Nobel Lectures, Economics 1969-1980, Editor Assar Lindbeck, World Scientific Publishing Co., Singapore, 1992 (online)
  • I was early regarded as having unusual intellectual capacity. I was an omnivorous reader, and I added to that a desire to systematize my understanding. As a result, history, for example, was not merely a set of dates and colorful stories; I could understand it as a sequence in which one event flowed out of another. This sense of order crystallized during my high-school and college years into a predominant interest in mathematics and mathematical logic.
    • Arrow (1984) "November 1984 lecture at Trinity University". Lecture presented November 5, 1984.
  • Multiple discoveries are in fact very common in science and for much the same reason. Developments in related fields with different motivation help one to understand a difficult problem better. Since these developments are public knowledge, many scholars can take advantage of them. It is pleasant to the ego to be first or among the first with a new discovery. However, in this case at least, the evidence is clear that the development of general equilibrium theory would have gone on quite as it did without me.
    • Arrow (1984) "November 1984 lecture at Trinity University". Lecture presented November 5, 1984.

Social Choice and Individual Values (1951)[edit]

Kenneth J. Arrow (1951) Social Choice and Individual Values. 2nd ed. 1963. Wiley, New York.
  • In a capitalist democracy there are essentially two methods by which social choices can be made: voting, typically used to make ‘political’ decisions, and the market mechanism, typically used to make ‘economic’ decisions. In the emerging democracies with mixed economic systems Great Britain, France, and Scandinavia, the same two modes of making social choices prevail, though more scope is given to the method of voting and to decisions based directly or indirectly on it and less to the rule of the price mechanism. Elsewhere in the world, and even in smaller social units within the democracies, the social decisions are sometimes made by single individuals or small groups and sometimes (more and more rarely in this modern world) by a widely encompassing set of traditional rules for making the social choice in any given situation, for example, a religious code.
    • p. 1: Opening pharagraph
  • We will also assume in the present study that individual values are taken as data and are not capable of being altered by the nature of the decision process itself
    • p.7
  • 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.
    • p. 83
  • 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.
    • p. 85
  • 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.
    • p. 85 as cited in: Gerry Mackie (2006) "The Reception of Social Choice Theory By Democratic Theory".

The Limits Of Organization (1974)[edit]

  • Collective action is a means of power, a means by which individuals can more fully realize their individual values.
    • Chapter 1, Rationality: Individual And Social, p. 16
  • Trust is an important lubricant of a social system. It is extremely efficient; it saves a lot of trouble to have a fair degree of reliance on other people's word. Unfortunately this is not a commodity which can be bought very easily. If you have to buy it, you already have some doubts about what you have bought.
    • Chapter 1, Rationality: Individual And Social, p. 23
  • As is by now well known, attempts to form social judgments by aggregating individual expressed preferences always lead to the possibility of paradox.
    • Chapter 1, Rationality: Individual And Social, p. 25
  • There are many other organizations beside the government and the firm. But all of them, whether political party or revolutionary movement, university or church, share the common characteristics of the need for collective action and the allocation of resources through nonmarket methods.
    • Chapter 1, Rationality: Individual And Social, p. 26
  • It is this thinking which I think gives rise to the greatest tragedies of history, this sense of commitment to a past purpose which reinforces the original agreement precisely at a time when experience has shown that it must be reversed.
    • Chapter 1, Rationality: Individual And Social, p. 29
  • The purpose of organizations is to exploit the fact that many (virtually all) decisions require the participation of many individuals for their effectiveness.
    • Chapter 2, Organization And Information, p. 33
  • Uncertainty means that we do not have a complete description of the world which we fully believe to be true.
    • Chapter 2, Organization And Information, p. 34
  • In eras when authority or at least specific authorities have been questioned, there is more tendency to examine the roots of and the need for authority. The owl of Minerva flies not in the dusk but in the storm.
    • Chapter 4, Authority And Responsibility, p. 65

The Economics of Information (1984)[edit]

Kenneth Arrow (1984) The Economics of Information. Vol 4
  • 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.
    • p. 55
  • The formal structure of a decision problem in any area can be put into four parts: ( 1 ) the choice of an objective function denning the relative desirability of different outcomes; (2) specification of the policy alternatives which are available to the agent, or decisionmaker, (3) specification of the model, that is, empirical relations that link the objective function, or the variables that enter into it, with the policy alternatives and possibly other variables; and (4) computational methods for choosing among the policy alternatives that one which performs best as measured by the objective function.
    • p. 55
  • [The decisionmaking role of the firm has progressed from the neoclassical standpoint of profit maximization to sales maximization, utility maximization, and satisficing. From the Operation Research point of view] ...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

Quotes About Kenneth Arrow[edit]

  • In 1972 American economist Kenneth Arrow, jointly with Sir John Hicks, was awarded the Nobel Prize in economics for “pioneering contributions to general equilibrium theory and welfare theory.” Arrow is probably best known for his Ph.D. dissertation (on which his book Social Choice and Individual Values is based), in which he proved his famous “impossibility theorem.” He showed that under certain assumptions about people’s preferences between options, it is always impossible to find a voting rule under which one option emerges as the most preferred.

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