A Paul Milgrom Story Commemorating His (and Robert Wilson's) Winning the Nobel Prize in Economics

The very first post I ever wrote for this blog was a tribute to Stanford Economist Kenneth Arrow, shortly after he passed away. I had the great honor of meeting Ken Arrow, and the even greater honor of having him write a blurb for my book, Constitutional Process: A Social Choice Analysis of Supreme Court Decision Making. That book relied upon social choice theory, for which Arrow's work is central, to study various doctrines and decision making dynamics in the Supreme Court. I never met Stanford Economists Paul Milgrom or Robert Wilson, who together just won the Nobel Prize in Economics for their brilliant contributions to the study of auction theory. Even so, I have a Paul Milgrom story.

I was in Israel in the spring of 2002 and had recently seen the movie, A Beautiful Mind, based on the Sylvia Nasser biography of another economics Nobel Laureate, John Nash, who had spent much of his career at Princeton University. Although I enjoyed the movie, I was troubled by what appeared as perhaps its most pivotal scene. The scene depicted a young John Nash conveying to a group of fellow Princeton mathematics graduate students in a bar an insight he was experiencing in real time. This was motivated by a group of young women who had entered the bar, one of whom, a blond woman, the men found particularly attractive.

The movie scene goes like this. The women walk in, in equal numbers to the men, all of whom take notice of the woman who is blond. One says to the rest of the group, if they each pursue the blond woman, then according to the teachings of Adam Smith, they will each, through self interest and competition, accomplish their goals. On that, little imagination is required. This is presented as the critical moment during which Nash, who is later revealed as a paranoid schizophrenic and who until then was fumbling between chasing the entrails of birds and talking to non-existent people, reveals the insight that turns him into the John Nash. Nash declares that "Adam Smith needs revision"! Nash explains that if all the men pursue the blond woman, they will block each other out. And then, when they pursue the other women, those women, having been offended by their conduct, will reject each of them. The better strategy, Nash explains, is for them to coordinate their pursuits of the other women, leaving none of the women offended and each of the men successful. (Notably, rather than joining in such pursuits, Nash leaves the bar upon having this realization, thanking the blond woman as he leaves!)

Setting aside the sexism and implausibility of this account even for an earlier generation of math grad students, this scene troubled me for a very different reason. The scene is supposed to depict a concept that is today known as a pure Nash equilibrium. A pure Nash equilibrium has three specific properties. The players in the game, here the men, must each engage in their own rational strategy, absent knowledge of the other players' strategies or any coordination with other players, yielding a result from which no player can improve his outcome with a unilateral change in strategy. At the time I watched the movie, I had been working on an article that was my initial foray into game theory, albeit with somewhat limited knowledge. Even so, I had a lingering suspicion that Ron Howard was a far better as the movie's director than he was as a game theorist.

At a bookstore in Tel Aviv, I happened upon the March 25, 2002 International edition of Newsweek. In it was an interview with Stanford Economist Paul Milgrom. Milgrom explained just what I had been thinking, except with the precision of a world class game theorist. It turned out my instincts were right!

This sufficiently inspired me that I used it in framing what became a major article, published in the William and Mary Law Review. I led the article with the movie's misconveyed story about John Nash, explained why getting it right was essential to grasping the concept, and used that concept to explore a series of games among states that implicate a legal doctrine known as the Dormant Commerce Clause Doctrine. That doctrine arises from the Commerce Clause, a provision in Article I of the Constitution that confers regulatory power over commerce to Congress. The clause doesn't expressly convey a negative check on state laws that somehow undermine national commerce, but the Supreme Court, as early as 1824, in a case named Gibbons v. Ogden, began considering it as a means of exercising just such a check.

Oliver Wendell Holmes once observed that the United States would not seriously be jeopardized if the Supreme Court lost its power to strike down federal laws, but it would be if the Court lost that power respecting state laws. When I teach this body of case law, I explain that Holmes was certainly right, and that the critical doctrine that proves it is the Dormant Commerce Clause Doctrine. In fact, the doctrine is so central that although Justice Scalia questioned its legitimacy--there is no express clause creating it--he nonetheless advised a group of European jurists that they would do well to legitimate the practice by creating a doctrinal basis in the EU for exercising such power. For Scalia, the doctrine might best be viewed as a necessary fix to our imperfectly worded Constitution.

Although we never met, I thank Paul Milgrom for giving this novice a needed confidence boost nearly twenty years ago, encouraging me to dive deeper into a fascinating field that has since become central to my work. My textbook Law and Economics: Private and Public (with Todd Zywicki and Tom Miceli) devotes two chapters to game theory, and I have since written several law review articles relying on these tools, including two coming out this year! Oh, and the title of that earlier article: A Beautiful Mend: A Game Theoretical Analysis of the Dormant Commerce Clause Doctrine.

Congratulations to both Paul Milgrom and Robert Wilson on this well-deserved Nobel Prize!

Comments are most welcome.