There are two kinds of games in economics. One is the game where people use only legal moves. Then there is the true game, the one like real life, where the strategies and moves people make, some of them contain illegal gains.

Leonid Hurwicz’s quote highlights the distinction between idealized economic systems and the complexities of real-world economic behavior. He contrasts two types of games in economics: one where all actions are constrained by legal boundaries, and the other where illegal gains are often involved. The first type of game, which adheres to only legal moves, represents a theoretical or perfectly regulated economic system, where players follow the rules and operate within the bounds of law and morality. In contrast, the second type of game more closely mirrors real life, where individuals and organizations often exploit loopholes, engage in unethical practices, or make illegal moves to maximize their profits.

Hurwicz is suggesting that while economic theory often assumes a system where actors play by the rules, the reality of economics is far messier. In the real world, economic decisions are influenced by a variety of factors, including illegal practices such as fraud, corruption, or tax evasion. By acknowledging that such illegal strategies exist, Hurwicz is emphasizing the need for a more nuanced understanding of how markets and economies function, where the pursuit of profit can sometimes lead people to engage in actions that go beyond the boundaries of legality.

The quote also speaks to Hurwicz’s contributions to game theory and economic modeling, areas in which he made significant advancements. By using the metaphor of a game, he highlights the strategic decisions that individuals and businesses make, often based on self-interest and the desire to maximize outcomes. This perspective allows for a broader view of economic behavior, recognizing that while rules are important, informal rules, and illegal actions are an inevitable part of how economic agents navigate the world.

Hurwicz, a Nobel laureate in economics, was known for his work in mechanism design theory, which explores how institutions and markets can be structured to achieve desired outcomes despite the complex and often imperfect behavior of individuals. This quote reflects his understanding of the gap between idealized economic models and the practical realities of human behavior in a competitive, often imperfect, economic landscape.