Kenneth Arrow selected as National Medal of Science winner

L.A. Cicero Kenneth J. Arrow

Arrow, 84, is the Joan Kenney Professor of Economics and Professor of Operations Research, Emeritus, as well as a senior fellow at the Center for Health Policy at Stanford's Freeman Spogli Institute for International Studies, the Center for Primary Care and Outcomes Research at Stanford School of Medicine and the Stanford Institute for Economic Policy Research.

Kenneth J. Arrow, professor emeritus of economics and of operations research whose work has changed thinking in stock markets as well as the health-care and insurance industries, has been selected as one of eight recipients of the 2004 National Medal of Science, the White House announced Monday.

The medal is the nation's highest scientific honor. Arrow, 84, is the Joan Kenney Professor of Economics and Professor of Operations Research, Emeritus, as well as a senior fellow at the Center for Health Policy at Stanford's Freeman Spogli Institute for International Studies, the Center for Primary Care and Outcomes Research at Stanford School of Medicine and the Stanford Institute for Economic Policy Research. A Nobel laureate in economics, Arrow shared the prize in 1972 with John R. Hicks for pioneering contributions to general economic equilibrium theory and welfare theory. His National Medal of Science citation acknowledges contributions outside that realm, particularly in the areas of making decisions using imperfect information and of bearing risk.

"It's of course a great honor, one of the highest honors one can receive, especially for a social scientist, since not every year has a social scientist been among the winners," Arrow said in a phone interview. He pointed out that a social scientist has been among the winners in fewer than half the years the award was presented, and economists are but a subset of social scientists.

Arrow's medal brings the number awarded to scholars at Stanford, including the Hoover Institution, to 32.

"Arrow has made groundbreaking contributions to the pure theory of economics but also holds a broad understanding of the social science arena in which theories are confronted and practical lessons worked out," said a White House statement. "His fundamental research on risk perception and behavior under uncertainty, and on equilibrium in markets with imperfect information, began a revolution in the design and analysis of market allocation mechanisms."

A 1963 paper he wrote on health care changed the way people viewed health and economics by exploring the relationship between insurers, who cannot directly observe what medical care patients need, and the insured, who can overuse the resource of medical care since physicians must side with them. The subsequent establishment of health maintenance organizations, or HMOs, attempted to overcome this overuse of insurance, called "moral hazard," by having the same organization deliver the health care as provides the insurance.

He also has examined another situation in which two sides have unequal information: the life insurance industry, where studies show that people who buy annuities, which provide income after a certain age, live longer than those who buy regular life insurance.

His studies of risk bearing, such as how power interruptions may affect aluminum refining, are important to big businesses. Would a power company be liable for damages if its failure to deliver electricity caused an aluminum business to suffer great losses? In the wake of Hurricane Katrina, how much responsibility should insurers bear not just in insuring houses but in making sure the houses they do insure can withstand hurricanes?

Arrow holds a doctorate in economics from Columbia University and about 20 honorary degrees. His dissertation was published in 1951 and became the classic Social Choice and Individual Values. He is a member of the National Academy of Sciences and the Institute of Medicine.

The National Medal of Science honors individuals for pioneering scientific research in a range of fields, including physical, biological, mathematical, social, behavioral and engineering sciences, that enhances our understanding of the world and leads to innovations and technologies that give the United States its global economic edge. The National Science Foundation (NSF) administers the award, which was established by Congress in 1959.

The other 2004 National Medal of Science laureates are Norman E. Borlaug (Texas A&M University), Robert N. Clayton (University of Chicago), Edwin N. Lightfoot (University of Wisconsin-Madison), Stephen J. Lippard (Massachusetts Institute of Technology), Phillip A. Sharp (Massachusetts Institute of Technology), Thomas E. Starzl (University of Pittsburgh School of Medicine) and Dennis P. Sullivan (State University of New York-Stony Brook).

"NSF joins the American people in congratulating these heroes of science and engineering, who are advocates for the American public, seeking ways to improve both our understanding of our world and the way we live within it," said NSF Director Arden L. Bement Jr. in a statement.