Research and Development, Testing, and the Economics of Information, 1937–63

Abstract

American mathematicians’ contributions to the engineering and production of equipment in World War II included the exploration of ways to improve choices between competing designs and maximize the value of experimental testing of prototypes. After the war, these contributions were extended, particularly at the RAND Corporation. Working on such matters, Kenneth Arrow took a keen interest in testing as a paradigm for information gathering in economic decision-making and in encouraging investment in R&D as an information-gathering exercise essential to making informed choices in military systems acquisition. He later extended insights about the shortcomings of information gathering as a market activity to his touchstone analysis of disparities of information between physician and patient as a crucial aspect of the economics of medical care. While it is difficult to trace the precise influence of the work of Arrow and others around him on engineering and R&D management, the issues they grappled with have remained relevant for more than half a century.