The Nobel Prize

Maurice F.C. Allais (b. 1911)

Maurice Allais was born in Paris, France in 1911. He studied at the École Polytechnique in Paris, from where he graduated in 1933.After a year of military service and two years at the École Nationale Supérieure des Mines in Paris he started work in 1936 as a public service engineer. From 1937 to 1943 he served as head of the Mines and Quarries Service in Nantes and was director of the Bureau of Mines Documentation and Statistics in Paris from 1943 to 1948. In 1949 he was awarded his doctorate in engineering from the Faculty of Science at the University of Paris.

Allais’s academic career began in 1944 when he was appointedProfessor of Economic Analysis at the École Nationale Supérieure des Mines, a post he held until 1988. From 1946 to 1980 he was director of a research unit at the Centre National de la Recherche Scientifique (CNRS) – the National Centre for Scientific Research. He was also Professor of Theoretical Economics from 1947 to 1968 at the Institute of Statistics, University of Paris and Professor of Economics at the Graduate Institute of International Studies, Geneva from 1967 to 1970. He was a member of the editorial board of Revue d’Économie Politique from 1952 to 1984 and of Econometrica from 1959 to 1969. Among his many offices and honours are numerous prizes including, in 1978, the prestigious Gold Medal of the CNRS for his lifetime work. He was made an Officer of the French Legion of Honour in 1977. In 1988 Allais was awarded the Nobel Memorial Prize in Economics ‘for his pioneering contributions to the theory of markets and efficient utilization of resources’ (Nobel Foundation, 2004).

Allais was trained as an engineer and quite remarkably taught himself economics by reading the main works of Léon Walras, Vilfredo Pareto and Irving Fisher. His Nobel Memorial Prize was awarded on the basis of two major works published in French in the 1940s: A la Recherche d’une discipline économique, première partie:L’Économie pure (In quest of an economic discipline, Part 1: Pure economics) (Allais, 1943) and Économie et intérêt (Economy and interest) (Allais, 1947).
In order to place these two major works in historical context we need to first mention the work of three past eminent economists. Writing in the eighteenth century, the Scottish economist and philosopher Adam Smith (1723–90) argued that, in a market economy, the decisions of ‘self-interested’ agents are coordinated through the ‘invisible hand’ of the price system. In the nineteenth century the French economist Léon Walras (1834–1910) presented a mathematical formulation of Smith’s ideas as a system of equations in which equilibrium in all markets in an economy is simultaneously determined. Walras’s work was later developed by the Italian sociologist and economist Vilfredo Pareto (1848–1923). In his monumental 1943 book (which is over 900 pages in length), Allais built upon and extended the earlier work of Walras and Pareto by ‘providing increasingly rigorous mathematical formulations of market equilibrium and the efficiency properties of markets’ (Nobel Foundation, 2004). In doing so he presented general and rigorous proofs of two fundamental propositions of welfare theory, namely that: (i) any market equilibrium is socially efficient in the sense that no one can be made better off without someone else being made worse off; and (ii) under certain conditions, each socially efficient situation can be achieved through a market equilibrium and a redistribution of initial resources. Allais termed these two propositions the ‘equivalence theorems’. In the 1970s he sought to develop ideas first put forward in his 1943 book by offering a ‘general theory of surplus’ (Allais, 1981). Utilising dynamic analysis, equilibrium is attained only when any surpluses have been exhausted. Allais extended his 1943 work in his second major book Économie et intérêt (Allais, 1947). Interestingly the book contains a number of pioneering contributions which presage analysis subsequently developed and attributed to other leading economists. Examples include: a rigorous theoretical analysis of the transactions demand for money subsequently developed independently by William Baumol and James Tobin (see entry in this volume) in the early-to-mid1950s; the introduction of an overlapping generations model before Paul Samuelson’s work in the late 1950s; and a rigorous proof of what later came to be known as the golden rule of capital accumulation subsequently attributed to Edmund Phelps in the early 1960s.

Much of Allais’s work in these two major books paralleled similar work undertaken by John Hicks (see entry in this volume) in his 1939 book Value and Capital and Paul Samuelson (see entry in this volume) in his 1947 book Foundations of Economic Analysis. However, because Allais’s work was published in French it has not received the same international acclaim as that given to the work of his English-speaking fellow Nobel Memorial Laureates. In fact, outside France, Allais is best known for what has come to be popularly known as the Allais paradox. In the early 1940s, two mathematical economists John von Neumann (1903–57) and Oskar Morgenstern (1902–77), who applied game theory to economics, put forward their expected utility hypothesis, where individuals make choices under circumstances of uncertainty as though maximising their expected utility. In a series of papers published in 1952 and 1953 (see, for example, Allais, 1953), Allais presented the results of a survey he had conducted involving a hypothetical game in which the subjects routinely violated the expected utility axioms. These findings have acted as a catalyst to much subsequent research in the field of decision making under uncertainty.

For an outline of Allais’s main contributions to economic science, the reader is referred to his 1988 Nobel Lecture (Allais, 1988). Finally, in addition to his contributions to economics, mention should also be made of his work undertaken on the history of civilisations, and in theoretical and applied physics.

Main Published Works
(1943), A la Recherche d’une discipline économique, première partie: l’Économie pure, Paris: Atel
iers Industria; 2nd edn published as Traité d’économie pure, Paris: Imprimerie Nationale,

(1947), Économie et intérêt, 2 vols, Paris: Imprimerie Nationale.

(1953), ‘Le Comportement de l’homme rationnel devant le risque: critique des postulats et
axioms de l’école américaine’, Econometrica, 21, October, pp. 503–46.
(1981), The General Thory of Surpluses, 2 vols, Paris: Institut de Sciences Mathématiques etÉconomiques.
(1988), ‘An Outline of My Main Contributions to Economic Science’, in K.-G. Maler (ed.), Nobel Lectures, Economics 1981–1990, Singapore: World Scientific Publishing Co., 1992.

No comments: