COWEN: But then you must think we’re not doing enough theory today. Or do you think it’s simply exhausted for a while? VARIAN: Well, one area of theory that I’ve found very exciting is algorithmic mechanism design. With algorithmic mechanism design, it’s a combination of computer science and economics. The idea is, you take the economic model, and you bring in computational costs, or show me an algorithm that actually solves that maximization problem. Then on the other side, the computer side, you build incentives into the algorithms. So if multiple people are using, let’s say, some communications protocol, you want them all to have the right incentives to have the efficient use of that protocol. So that’s a case where it really has very strong real-world applications to doing this — everything from telecommunications to AdWords auctions.

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