Kenneth Arrow

Economist Born: August 23, 1921; Died: February 21, 2017 KENNETH Arrow, who has died aged 95, was a hugely respected Nobel prize-winning economist whose theories on risk, innovation and the basic mathematics of markets influenced thinking on everything from voting to health insurance and high finance.

He was most famous for his Impossibility Theorem, which sought to prove that collective decision making could never produce a result that respected everyone’s preferences, a theory particularly relevant in the aftermath of the election of Donald Trump and Brexit.

With the British economist Sir John Hicks, Arrow won the 1972 Nobel memorial prize in economic science for their pioneering mathematical work on general equilibrium theory, which says there is an overall balance between supply and demand in an economy as a whole. Their mathematical models dealt with the factors involved, such as when and where a product is sold.

Born in New York to Romanian Jewish parents, Arrow studied for a degree in mathematics at the City College of New York before serving in the US Army Air Corps during the Second World War. In 1949, he was appointed assistant professor of economics at Stanford University where he spent most of his career, although he also taught for 11 years at Harvard. He was also known as a mentor and five of his former students went on to become Nobel winners.

He came to international prominence in 1951 with his book, Social Choice and Individual Values, which used mathematical logic to discuss collective decision-making. His theorem was that it was impossible for a majority-rule voting system to be free of certain flaws. “You can say, ‘There’s no really good way to run an election’, but it is something else to prove it,” fellow economics laureate Robert Aumann said of the theory. “It’s like proving a bicycle cannot be stable.”

Arrow also looked at how risk aversion, innovation and information affect the economy.

In a 1963 paper he confronted problems with the economics of medical care and health insurance, arguing that it is not a truly price-competitive situation because among other things the buyer – the patient – has much less information than the doctor – the seller – about necessary treatment and options. The issue is known in economics as asymmetric information and has been used to argue against introducing market forces in medical care.

Arrow’s work had many other realworld applications. According to Paul Samuelson, the first American to win the Nobel economics prize, the economics of insurance, medical care, prescription drug testing, and the stock market could never be the same after Arrow.

Arrow won many awards during his long career, including the 2004 National Medal of Science, America’s highest scientific honour, presented to him by then president George Bush.

Several other members of the family became economics professors and his nephew, Lawrence Summers, is a former Harvard University economics professor, Harvard president, and US Treasury secretary under Bill Clinton and adviser to Barack Obama.

Away from economics, Arrow was interested in music, Chinese art and even whales.

His son David said: “I think in his academic career, when people talk about it, it often sounds like numbers and probabilities. But a large focus of his work was how people matter.

“The fact that people often don’t behave rationally ... that was one aspect that he often looked at, how it affected the lives of the people.”

In addition to David Arrow, Kenneth Arrow is survived by another son, Andrew, a sister, Anita Summers, and a grandson.