Kenneth Arrow – Biography of Kenneth Arrow

Kenneth Joseph Arrow, born in New York City (USA), on August 23, 1921, is an economist, winner of the Nobel Prize in Economics in 1972, together with John Hicks, for their pioneering contributions to the theory of general economic equilibrium and to the welfare theory.

Arrow is considered one of the founders of modern neoclassical economics. His main contributions refer to the social choice theory, especially with the impossibility theorem that bears his name, and the analysis of situations of general economic equilibrium. In addition, he contributed to other areas of economic research, such as endogenous growth theory and the study of information asymmetries.

Arrow graduated from Townsend Harris High School and earned his bachelor’s degree from the City College of New York in 1940. At Columbia University, in 1941, he received his master’s degree. World War II interrupted the studies of Arrow, who was an officer in the United States Army meteorological service from 1942 to 1946.

Between 1946 and 1949 he was a student at Columbia University, but also a research associate at the Cowles Foundation at the University of Chicago. Simultaneously he was an assistant professor of economics at the same university.

In 1947 he married Selma Schweitzer, with whom he had two sons, David Michael and Andrew Seth. In 1951 he obtained a Ph. D. from Columbia. In 1972 he was awarded the Nobel Prize, and Arrow became the youngest winner (age 51) to receive such recognition. Today he is Professor Emeritus of Economics and Operations Research at Stanford University.

In 2004, the President of the United States, George W. Bush, presented him with the National Medal of Science, the highest scientific award in his country, for his contributions to research on the determination of decisions under conditions of imperfect information and risk management. Arrow is also a founding member of the Pontifical Academy of Social Sciences.

Main contributions to economic theory

Impossibility theorem

The proof of the theorem implies the impossibility of representative democracy based on the principles that are usually considered the basis of democracy: the equality of votes, the singularity of the election, the certainty of the result.

The theory of general equilibrium

Together with Gerard Debreu, who would win the Nobel Prize in 1983, Arrow provided the first rigorous proof of the existence of an equilibrium situation, given certain constraints, capable of conducting general equilibrium. Arrow continued to extend the model so that it also dealt with the problems of uncertainty and stability of the equilibrium reached, and the analysis of the question of the effectiveness of competitive equilibria.

The endogenous growth theory

Arrow contributed to the birth of research on the theory of endogenous growth, on the study of technological changes, considered a key element for economic growth.

Information asymmetries

Arrow also studied the problems caused by asymmetric information in the markets. In many transactions, one party (usually the seller) has more information about the product than the other party. These asymmetries encourage abusive behavior on the part of those who have the most accurate information. The result was the birth of tools such as guarantees and cerification of products. Arrow focused on the topic of asymmetries in health care, in the exchange of securities in secondary markets, in online auctions and in insurance.