As the most prestigious prize in the field, the announcement of the Nobel prize in economics is an annual milestone moment for economists. But last week’s announcement, which awarded the prize to economists Abhijit Banerjee, Esther Duflo and Michael Kremer was particularly remarkable. It diversified the cohort of winners, while acknowledging a deeper shift in the field itself—and this could have important implications for policymaking at large.

In India, Banerjee has dominated the headlines as the second Indian-origin winner of the award (after Amartya Sen in 1998). But among the trio, and all previous winners, Duflo stands out—as the youngest-ever winner and the second female winner of the prize. Across all Nobel fields, economics has seen the oldest winners on an average, and the fewest female winners (although as a proportion total winners, physics has had the fewest female winners).

The three economists won for their contributions to alleviating poverty, making this a rare award for development economics. In the 51 years of the award, it is the fifth prize to be awarded to development economists, according to Mint’s analysis of all 51 Nobel economics prizes conferred to 84 scholars till date.

The 2019 award also continues a recent eclectic distribution of the award. In the last four years, the prize has been awarded to scholars in non-traditional fields such as environmental economics (William Nordhaus in 2018) and behavioural economics (Richard Thaler in 2017).

Yet, these remain recent trends; on the whole, most Nobels have been awarded for contributions in the more traditional fields of economics. For instance, contributions to macroeconomics (the subfield devoted to exploring the economy as a whole) and microeconomics (the subfield dedicated to individual and firm decision-making), account for around half of all prizes.

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The evolution of the Nobel prize in Economics
The evolution of the Nobel prize in Economics
'Theory' and 'markets' are mentioned the most in the rationale for Nobels.
'Theory' and 'markets' are mentioned the most in the rationale for Nobels.

Even within these subfields, there are differences among winners—in both ideology and approach. For instance, in 1974, the Nobel committee awarded the prize to both Friedrich Hayek and Gunnar Myrdal for their contributions to our understanding of the interdependence of economic, social and institutional phenomena. But as a right-leaning economist (Hayek) and a left-leaning economist (Myrdal) they provided starkly different interpretations of the same concept.

In this case, ideologies were balanced, but, according to one analysis, the economics Nobel has not always been this balanced. In their book, The Nobel Factor: The Prize in Economics, Social Democracy, and the Market Turn, Avner Offer and Gabriel Soderberg use survey and citation data to argue that the prize is over-represented by the ideological right, when compared to the broader profession. And, because of the prestige the Nobel prize confers, neoliberal theory and policies received a boost across the world.

There are also big differences in how laureates approach solving economic problems. Most economists take one of two approaches: theoretical or empirical. Theoretical studies approach problems intellectually, generating theories that explain or solve problems based on certain assumptions.

Many of the early Nobels were awarded for this type of theoretical contributions. In 1972, for example, Kenneth Arrow and John Hicks won the prize for their contributions towards general equilibrium theory (which attempts to explain the functioning of the entire economy). In contrast, empirical economics uses theory but focuses primarily on data to understand the world.

The 2019 Nobel winners exemplify this approach. Over the last two decades, Banerjee, Duflo and Kremer have conducted large-scale field experiments (randomized control trials or RCTs) to identify successful poverty alleviation strategies. And their work is part of a deeper shift towards more empirical work within economics, driven partly by technology which has now made large-scale data collection and analysis feasible.

A 2013 study highlighted that just 28% of studies in top American economic journals focused on theory, compared with 62% in 1983 . These theoretical studies have been replaced by both empirical and experimental studies (where experiments are conducted to test theories).

Within these experiments, one particular form —the RCTs that this year’s Nobel winners pioneered—has grown in prominence. A 2016 study shows that in development research, there has been a dramatic increase in the use of RCTs among economists, international organizations and even governments.

With this Nobel prize, RCTs could continue rising among both academics and governments.

Sneha Alexander in Mumbai contributed to this story.

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