Who could win this year’s Nobel Prize for Economics?

The first ‘Nobel’ in Economics awarded in 1969 was shared by Norwegian economist Ragnar Frisch and Dutch economist Jan Tinbergen for their work in econometrics. Paul Samuelson from MIT, whose textbook many millions of students have read, won the second prize for his many foundational contributions to economic theory, including the idea of revealed preference. Since then, the award has been given to one, two or three individuals each year, in a variety of sub-fields ranging from welfare economics, Austrian business cycle theory, financial economics, monetarism, growth cycle theory, transaction costs, asymmetric information and game theory to behavioural economics and human capital theory.

Reflecting the revealed preference of the most talented doctoral students of the time, many of the prizes for the first four decades were awarded to strongly mathematical and theoretical fields, starting with econometrics and evolving to game theory. Many of the Nobel laureates in Economics had strong mathematical backgrounds, including John Nash (about whom the movie Beautiful Mind was made), Kenneth Arrow, Leonid Hurwicz and Rober Aumann.

The pattern of prizes has gradually evolved over the years. One shift is a rediscovery of ‘social’ in the social science definition of Economics. With the award to Indian-American economist Amartya Sen in 1998, the prize committee appeared to signal a recognition of the roots of Economics in moral and social philosophy. Contrary to popular belief, there is a reasonable amount of mathematics in Sen’s arguments, particularly in his social choice theory that builds on earlier work by laureate Kenneth Arrow called Arrow’s impossibility theorem. Sen’s award re-introduced social philosophy to the general discourse. Another shift has been recognition of the rapidly evolving field of behavioural economics. While some prizes have been awarded for human capital theory, notably to Gary Becker of the University of Chicago, and others for the economics of choice, notably Arrow and Nash, the field of behavioural economics combines the two fields from the point of view of psychology. Daniel Kahneman and Amos Tversky (who died before the award), received the first Nobel for behavioural economics (2002) for work related to cognitive biases, prospect theory and loss aversion. Subsequently, Robert Shiller (2013, market anomalies) and Richard Thaler (2017, nudge theory) have won prizes in the field.

A third shift is the one towards experimental economics, which uses a methodology called randomized controlled trials (RCT). Abhijit Banerjee, Esther Duflo and Michael Kremer were awarded the prize in 2019 for their work in using RCTs for large-scale field trials to inform policy choices. ‘Randomistas,’ as they are called, are both widely admired and critiqued for their approach. Admirers believe that ivory tower economics has not served people well and experimental economics holds greater promise. Critics rail against the “religious cult" like emphasis on an exclusive methodology, particularly one whose statistical basis is not beyond question. Others lament that a large number of talented young economists over the last dozen years or so have been lost to the “randomista army," depriving other areas of Economics.

So, who will win the Nobel Prize in Economics this year? Parsing the tea leaves suggests that it will be a Nobel calibre economist with a significant body of work on a broad theme that the prize committee is keen to recognize.

Only two women have ever won the prize, Elinor Ostrom (2009) for her pioneering work in the economics of the commons, and Esther Duflo. At 47, Duflo was the youngest ever economist to have won at the time. The record shows a clear pattern of letting ideas marinate for a while before they are recognized. This means talented 40+ year old economists like Raj Chetty, Parag Pathak, Jesse Shapiro, Emi Nakamura and Melissa Dell may have to wait. The next wave of prizes will likely be for issue-first, data based, experimental (but not RCT) approaches. We will probably have a transition period before that wave is fully established.

One good way to identify Nobel calibre is to measure their influence through academic citations, the so-called citation laureates. Based on this approach, Andrei Schleifer of Harvard University and Daren Acemoglu of MIT are potential winners for their work on the importance of institutions. A highly cited economist in trade theory is Marc Melitz of Harvard. Robert Barro is one of the most influential macro-economists of the 21st century to not have received a prize yet. Matthew Rabin of Berkeley is a potential winner from the behavioural economics camp. Whenever there is a thematic wave, Emmanuel Saez, Thomas Piketty and the talented young Gabriel Zucman will likely win at some point soon for their work on income and inequality.

P.S: “If I could explain it to the average person, it wouldn’t have been worth the Nobel Prize," said Physics Nobel laureate Richard Feynman.