Incentive Compatibility

Incentive Compatibility – along with mechanism design – is one of the key ideas for which the 2007 Nobel Prize in Economic Sciences was awarded. A mechanism is said to be incentive-compatible if every participant can achieve the best outcome to him/herself just by revealing his or her true preferences, or openly acting on his or her preferences (without “cheating”).

Although it’s a little-known fact of history, Hitler may have helped Leo develop this idea.

The story starts with Leo at 23 negotiating the bureaucracies of Switzerland, England and Portugal in order to get the necessary documents to emigrate to the U.S. during World War II.

Here’s the story in his own (lightly edited) words:

I started out in the fall quarter of 1938 at the London School of Economics, and the war broke out a year later, roughly. When the academic year 1938-’39 was ending (so, roughly speaking, May or June) I asked the British to extend my visa, which was only for one academic year. But they said they couldn’t do it, because my passport was only valid up to the end [of the academic year. They said I had to extend the passport, and then they could extend the visa. Well, the Poles were making difficulties with extending the passport. So I tried to get the British to permit me to stay a little longer. But they said that that was not their custom. By that time I knew enough about the British to know that when they say it’s not their custom, if you stand on your head, they won’t do it.

What I did is, I pretended essentially to be trying to go back to Poland without actually going there. So, I got transit visas through several countries, one of which was Switzerland. The first thing I did was to go to Paris. And I stayed in Paris for a couple of weeks, maybe a month, of the year 1939.

And one day in August, close to my birthday, there was the big news: the Ribbentrop-Molotov pact, the agreement between Stalin and Hitler to divide up Poland. I was at that point in Paris. I took the first train to Berne. That was very good, because otherwise I would have been trapped in France under the Nazis. (I really, as usual, paid attention to the headlines.) When I traveled from Paris to Berne, I remember the blue lights inside the train: They didn’t have any real lights you could read with, because there was conviction that the war would break out without much delay.

The reason that I didn’t stay in Berne was that the Swiss there have a Swiss-German dialect. Actually, many dialects. I thought, I don’t want to start learning a Swiss dialect. The Swiss insisted on Swiss dialect to show that they were anti-Nazi. They weren’t using so-called “High German.” Geneva speaks classical French.

I spent the academic year ’39-’40 in Geneva, until I got the U.S. visa to emigrate. The U.S. Consulate in Switzerland, which was in Zurich, said they must have certificates of good conduct from each of the countries I had occupied in the previous five years, which was Poland (which was occupied by the Nazis) and England and France. When I wrote the French, the French didn’t have any problem, the certificate was routine. The British said they were not in the custom of issuing certificates of good conduct. And the U.S. consulate in Zurich insisted on that.

I went to the office of the chief of police in Geneva, and I said if I don’t get something like that from the British, I will not be able to emigrate to the U.S., and I’ll be a burden on the Swiss taxpayer.

He said, “How do you expect me to do anything about it?”

I said, “Write to the police in London, as if one policeman to another wants to know if a suspect has a bad record, asking if they have anything against me.”

He said, “All right, I’ll try it.”

And he wrote to the police in London, and they said they had nothing against me. He got it very quickly, because it was a collegial relationship between the police in western European Countries.

At some point the Kotzins sent me some money, after I lost my wallet in this post office. And I bought passage on an Italian boat. I already had the visa. This was early June. And just at that time, Italy joined Germany as partner in the war. So, of course, they couldn’t operate ships between Europe and the United States. So I was stuck again without money. I couldn’t ask Kotzins for money a second time.

So I essentially used a similar technique. I was in Lisbon already by that time. I got that far. First I went to the Italian shipping lines and I asked for my money back. They just laughed at me. They said, “Yes, you are an enemy, and come back afer the war.” That was not a good solution. Then I went to the harbor police, and essentially I used a variant of my trick in Geneva. I explained to them that if I cannot go to America, I cannot work in Lisbon, I’ll be a public burden.

So he said, “What do you expect me to do?”

I knew that Portugal was a dictatorship. (The dictator was an economist.) And the police could do anything they wanted. So I told him, “Just tell them you’ll take away their license.”

And within two days I got my money back.

But how I got these inspirations … I mean, I really acted as if I was an experienced person. I never had … It was really desperation.

But finally then I bought a ticket on a Greek boat. I was 23. The world was totally changed. The rules of the game were changed. But I somehow found if you sort of think through logically from the point of view of the other person … And everybody wanted to get rid of the refugees.

Hmmm. “The rules of the game.” Could the challenges he experienced at this formative age be part of what got him thinking about games, strategies, rules and incomplete information? Perhaps his biography will be titled (or at least have a chapter), “How Hitler Helped a Polish Jew Win the Nobel Prize.”



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