A Nobel Prize? Or Wool Over the Eyes?

I’m an economist-in-training. More specifically, I’m a PhD researcher and student in economics trying to gain the skills I’ll need to become a professional. Most of the time, this process consists of me making numerous and embarrassing mistakes that I’ve conditioned myself into leveraging for educational purposes. Why do such a thing? Because, one day, I’ll reach a career peak where I still make embarrassing mistakes incredibly often, but just less frequently than most other people. Professional economist. 

That was just a little joke, seeing as how it’s my first blog post here.

Even among professionals though, there are still a lot of famous aspects of economics that confuse and divide. You may think I’m talking about the research (that’s true, but wait, there’s more).

One economic issue that I’ve thought about for a few years and seemingly never been able to develop a strong overall opinion on is the Nobel Prize in Economics. Not having a strong opinion myself, it it thus the perfect occasion to provide concrete, yet often surprising, information on this famous prize, so that readers may formulate their own conclusions and hopefully be entertained along the way. 

Firstly, it’s important to note that the prize, officially, “The Nobel Memorial Prize in Economic Sciences,” is NOT one of the prizes that Alfred Nobel (inventor of dynamite and founder of the Nobel Prizes) originally stated in his will in 1895. As such, is not a “true” Nobel Prize, or it’s at least not typically considered in the same tier as the original prizes. The original Nobel Prizes in Chemistry, Literature, Physics, Medicine or Physiology, and Peace are all provided annually based on the investment returns accumulated from the original value of Alfred Nobel’s estate left behind in his will (originally worth about $200 million in today’s dollars). In the 1895 will, Alfred Nobel stated that the prizes needed to be awarded to ”those who, during the preceding year, have conferred the greatest benefit to humankind.”

Your first thought might be, “Wow. That sounds like a tall order,” and I would agree with you. But then again, the ambition and seemingly highest possible standards for human beings involved in the awards are probably are large part of why they’re so famous and prestigious. 

Unfortunately, the Nobel Prize in Economics is not one of these prizes.

In actuality, the Nobel in Economics was created in 1968 from a donation by the Swedish central bank to commemorate the bank’s 300th anniversary and is often referred to as “a Nobel Prize,” as it is administered with the others by the Nobel Foundation.  

Secondly, as of 1994, following the controversial award to mathematician, John Nash, the prize has technically been redefined as a “prize in the social sciences” more broadly. Despite this change, the field of economics is still favored and most selection committees are dominated by economists. The 2020 committee, for example, included 7 economics professors (including the chair) as members along with 2 finance professors, 1 statistics professor, and 1 sociology professor. 

Although I am not passing judgement here nor jumping to conclusions, I wouldn’t fault anyone who read the above and got some “disingenuous vibes.” But moving on. 

Finally, though this observation may seem less concrete than the prior facts, the Nobel in Economics has been subject to much controversy, as one could imagine, relating to its selection of winners, impact on the field, and the nature of its founding. Though “controversy” is not easily measured, my personal perception is that the award has only been surpassed by the Nobel Prize in Literature as a target for criticism (I’d hate to be on that committee).

To start, several members of Alfred Nobel’s family have had a bone to pick with it, especially human rights lawyer, Peter Nobel. They generally contend that Alfred Nobel would not have wanted his name attached to the award and, in the words of Peter Nobel, that Alfred, “despised people who cared more about profits than society’s wellbeing.” He’s gone on to call the Nobel in Economics a “PR coup by economists to improve their reputation.” Ouch. 

Even a few selected winners for the Nobel Prize in Economics have made their criticisms known over the years. Friedrich Hayek, who won in 1974, spoke at the Nobel banquet itself and informed everyone that, had he been consulted, he would have advised against the creation of the prize. Hayek argued that a Nobel in economics was uniquely different than the natural science prizes, because it gave economists undue and powerful influence over laymen in areas such as politics and law. Hayek described that the “natural science” winners mostly exercise their influence over other experts, and thus are prone to being effectively “cut down to size” by other experts if they exceed their competence. However, according to Hayek, an economist boosted by the prize can essentially be thought by the profession to be very likely wrong on something, but still hugely influential in writing or politics, for example. 

Some additional controversial highlights have included Milton Friedman’s 1976 win, which caused international protests; the 1994 prize to John Nash in part due to his alleged anti-semitism; and the 2005 prize to Robert Aumann, because he used game theory in his work to argue against dismantling Israeli settlements in Palestine (I would personally be terrified even trying to publish that in 2020). 

Additionally of note, only 2 women have won the prize in economics in its entire history: Esther Duflo in 2019, and Elinor Ostrom in 2009. Though the economics prize hasn’t been around as long as the “original” prizes, it’s at least glaring that only 2.4% of total economics laureates have been women. Though the Nobel Prizes in general have favored men, economics has an especially low percentage of women. The only prize lower in the percentage of lady Nobel Prize winners in Physics: 4 total, amounting to 1.9% of laureates. 

On a personal note, for whatever reason, I do remember as an economics undergraduate and in initial graduate study that my female peers generally surpassed me, even when I was trying my best. I have no idea why, and this is entirely anecdotal, but that’s definitely what I noticed. Now, admittedly, it might not have been necessarily hard to surpass me as an undergraduate in economics, but I promise most of the ladies were excellent role models and very skilled. I do wonder about differences in opportunity costs facing men and women, societal pressures, or just the historical bias of the committee in having an impact; but I try to know better than to speak too much where I am very unqualified.

In regards to my own conclusions on the prize, I respectfully hold the few opinions I have gathered with humility. Frankly, I believe that deciding which economics researcher has had the most positive impact on the field or humanity sounds like a rough choice. I think most people are aware that predicting the future is difficult to impossible, so determining that the winners from the past year on an annual basis conferred the greatest benefit to humankind in their field almost seems like just the front half of a full storybook to me. Even so, from the Nobel Prize winners’ whose research I’ve read, I can definitely understand why they were good enough to win. Much of their work is brilliant, creative, impactful, insightful, and dedicated. My final thought on that is typically that having your work declared the “greatest” compared to everyone else from the past year is probably overconfident, but honestly, I’m generally content with how they pick from the cream of the crop. Perfection at awards ceremonies may be overrated. 

I do agree with some criticisms of the prize, however. I believe Hayek’s critique of the prize offering winners undue influence is often true. Some laureates in my view since Hayek (who I will not name here), may be viewed as having leveraged their win into convincing people that they are right on a number of other, often unrelated topics. They are often “cut down to size” by members of the profession of course, but it does not have the same effect as it would in the natural sciences, and they tend to continue their influencing. 

Additionally, as a number of internet articles and opinion editorials (but somewhat little research) demonstrates, there is criticism of the prize for putting economics on a pedestal relative to the other social sciences. Many of these criticisms argue this primarily because they believe there is simply not good enough reason for economics to be valued more than similar “human or social science” disciplines like political science, anthropology, sociology, and psychology; or even humanities like history and philosophy. 

In contrast, I humbly tend to agree (recognizing my own bias) that economics as research and practice itself has made more consistent and less divergent progress since the beginning of the 20th Century than most of its similar peers including political science, anthropology, sociology, philosophy, and history (Yep, now I’m the one making the tall claims). I might consider psychology to have been more productive than economics though, despite the widely varying views in the field, when considering its impact on clinical practice, medicine, and the natural sciences. To also be fair, there may be reverse causality between the Nobel Prize explaining the performance of economics professionals as well, as I will consider shortly.

So, the reason I agree with the conclusion that the pedestal offered by the prize to economics is not ideal is not because I think economics doesn’t deserve a pedestal. I do think that the Nobel Prize may be the wrong way to do it, because it often, once selection is over, leads to using ethos and credibility as a means for deriving authority as opposed to more concrete and less fallacious measures of progress and conclusion in economics. That’s not to say the committee doesn’t pick massively impressive researchers, but I do believe that the measure of those researchers and their work can be argued for on their own merit, without the prize to assign cloudy prestige and references to awards as a substitute for rigorous continued defense. 

Finally, I believe, though I have not investigated the literature fully, that the existence of the prize may have had at least a modest inflating effect on the size and the scope of the economics profession over time. And that increase in size and scope comes with its own consequences. Indeed, two different economists in the modern day can spend their days employing such different methods on different topics, that you wouldn’t know at all that they were identified with the same field without the label. Furthermore, they may have very different notions of what “economics” means for them in practice and philosophy. Traditional economic and econometric tools have even been applied to other subjects like politics, environmental science, formal logic, law, culture, and religion. There is also a lot of research that is incredibly abstract, specific, or esoteric to such a degree that those intellectuals’ efforts might have been more fruitfully invested elsewhere. I do even know a few students and economists who view the profession as little more than a chance to exercise applied mathematics and computational skills usefully. 

Though the above is not full or completely proper evidence of the prize’s proposed effect, I do suspect that at least a substantial  part of this point of “diminished marginal value” can ultimately be traced back to the prize incentivizing researchers over the decades with additional wealth and prestige. Perhaps I’ll do some research of my own in the future to possibly better assess this. I’ll keep you all updated.

Overall, I believe the Nobel Prize in Economics is neat, but not without its problems. Whether those will be rectified and whether the positives exceed the negatives, I cannot say. I very much look forward to hearing about the next winner or winners though.

As a personal aside:

My favorite among all the Nobel Laureates I’ve read and studied the work of comes down to a three-way tie: 

George Stigler – 1982

James M. Buchanan – 1986

Elinor Ostrom – 2009. 

Some painfully close runners-up also include:

Friedrich Hayek – 1974

Douglass North – 1993

Ronald Coase – 1991

One economist who I believe would have won the prize (or at least been most deserving based on his profound and often pervasive influence on the profession) if he hadn’t passed away a little early is Ludwig von Mises. 

I also have a long-term hope for a candidate that I’m just dying to see them select in the coming years. I’m really hoping Bryan Caplan to be awarded the prize for his work on rational irrationality among other achievements. I don’t know if the politics of the committees would ever favor him, but I highly expect his work to better model modern, western politics in the coming years than any other framework out there. 

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