equilibrium theory, arrows second great set of contributions revolves around general equilibrium theory, the high altar of mathematical economics. There are many ways to produce collective choices. Arrow, K J (1962b The Economic Implications of Learning by Doing, Review of Economic Studies 29: 155-73. Part of this involved determining how a rational agent would employ information in an uncertain world to make choices. Saying the same of Arrow and economics would be an injustice to the achievements of modern researchers (and one that would have mortified Arrow). Arrows focus on the implications of imperfect information led to him to help pioneer (along with Edmund Phelps, another Nobel laureate) the theory of statistical discrimination (1973). Statistical discrimination is the leading competitor to models of taste-based discrimination, in which African Americans, for example, might be disadvantaged by animus. Walras set an agenda for mathematical economics whose resolution waited until Arrow and the 1950s.
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Any procedure, no matter how clever, runs the risk of producing cycles in voting or other bizarre outcomes. Arrow, K J (1951a Social Choice and Individual Values, New York: Wiley. In turn, this distorts the incentives of individuals to pursue higher quality education and can create a vicious cycle as disadvantaged groups rationally do not make educational investments. His 1978 essay on socialism is fascinating in illustrating how profoundly humane ideals interacted with economic science to produce Arrows political commitments. The benefits of such advances cannot be fully captured by the developer of an idea, and so science is a clear example of a case where the conditions under which efficiency of market equilibrium do not hold. Arrows results in no way call into question the intrinsic value of democratic processes. Understanding the conditions under which a market economy is efficient also reveals when it is not. Arrow, K J (1951b An Extension of the Basic Theorems of Classical Welfare Economics, in J Neyman (ed.).
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