“Secrets,” D. Ellsberg (2002)

Generally, the public won’t know even the most famous economists – mention Paul Samuelson to your non-economist friends and watch the blank stares – but a select few manage to enter the zeitgeist through something other than their research. Friedman had a weekly column and a TV series, Krugman is regularly in the New York Times, and Greenspan, Summers and Romer, among many others, are famous for their governmental work. These folks at least have their fame attributable to their economics, if not their economic research. The real rare trick is being both a famous economist and famous in another way. I can think of two.

First is Paul Douglas, of the Cobb-Douglas production function. Douglas was a Chicago economist who went on to become a long-time U.S. Senator. MLK Jr. called Douglas “the greatest of all Senators” for his work on civil rights. In ’52, with Truman’s popularity at a nadir, Douglas was considered a prohibitive favorite for the Democratic nomination would he have run. I think modern-day economists would very much like Douglas’ policies: he was a fiscally conservative, socially liberal reformist who supported Socialists, Democrats and Republicans at various times, generally preferring the least-corrupt technocrat.

The other famous-for-non-economics-economist, of course, is Daniel Ellsberg. Ellsberg is known to us for the Ellsberg Paradox, which in many ways is more important than the work of Tversky and Kahneman for encouraging non-expected utility derivations by decision theorists. Ellsberg would have been a massive star had he stayed in econ: he got his PhD in just a couple years, published his undergrad thesis (“the Theory of the Reluctant Duelist”) in the AER, his PhD thesis in the QJE, and was elected to the Harvard Society of Fellows, joining Samuelson and Tobin in that still-elite group.

As with many of the “whiz kids” of the Kennedy and Johnson era, he consulted for the US government, both at RAND and as an assistant to the Undersecretary of Defense. Government was filled with theorists at the time – Ellsberg recounts meetings with Schelling and various cabinet members where game theoretic analyses were discussed. None of this made Ellsberg famous, however: he entered popular culture when he leaked the “Pentagon Papers” early in the Nixon presidency. These documents were a top secret, internal government report on presidential decisionmaking in Vietnam going back to Eisenhower, and showed a continuous pattern of deceit and overconfidence by presidents and their advisors.

Ellsberg’s description of why he leaked the data, and the consequences thereof, are interesting in and of themselves. But what interests me in this book – from the perspective of economic theory – is what the Pentagon Papers tell us about secrecy within organizations. Governments and firms regularly make decisions, as an entity, where optimal decisionmaking depends on correctly aggregating information held by various employees and contractors. Standard mechanism design is actually very bad at dealing with desires for secrecy within this context. That is, imagine that I want to aggregate information but I don’t want to tell my contractors what I’m going to use it for. A paper I’m working on currently says this goal is basically hopeless. A more complicated structure is one where a firm has multiple levels (in a hierarchy, let’s say), and the bosses want some group of low-level employees to take an action, but don’t want anyone outside the branch of the organizational tree containing those employees to know that such an action was requested. How can the boss send the signal to the low-level employees without those employees thinking their immediate boss is undermining the CEO? Indeed, something like this problem is described in Ellsberg’s book: Nixon and Kissinger were having low-level soldiers fake flight reports so that it would appear that American plans were not bombing Laos. The Secretary of Defense, Laird, did not support this policy, so Nixon and Kissinger wanted to keep this secret from him. The jig was up when some soldier on the ground contacted the Pentagon because he thought that his immediate supervisors were bombing Laos against the wishes of Nixon!

In general, secrecy concerns make mechanism problems harder because they can undermine the use of the revelation principle – we want the information transmitted without revealing our type. More on this to come. Also, if you can think of any other economists who are most famous for their non-economic work, like Douglas and Ellsberg, please post in the comments.

(No link – Secrets is a book and I don’t see it online. Amazon has a copy for just over 6 bucks right now, though).

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3 thoughts on ““Secrets,” D. Ellsberg (2002)

  1. charlie says:

    I guess John Nash would qualify.

  2. Dan in Euroland says:

    Ken Lay of Enron.

  3. Robert says:

    D. McCloskey’s memoir is more about identity than it is about economics.

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