Economic Society, Sydney, Wednesday, October 8, 2014
Economists - and economic journalists like me - are used to being reminded by science-types that the Nobel prize in “economic sciences” is not a real Nobel. It’s true. Alfred Nobel, said to have had a low opinion of economists, did not include provision for an economics price in his will. Rather, almost 70 years after the real prizes began, a Swedish bank decided to sponsor an economic prize “in honour of Alfred Nobel”. And since it’s the Swedish central bank, able to print its own money, its continued sponsorship has never been in doubt.
So I’m not sure I agree with Paul Oslington that the Nobel is a symbol of the economics professions’ “scientific status”. Only economists delude themselves that economics is a genuine science. In any case, I read that the reference to “economic sciences” is intended as an allusion to the other “sciences” included in the prize, political science and psychology.
Even so, I’m a great supporter of the Nobel in economics, because I suspect it’s one of the few things offering economists an incentive to broaden their horizons beyond the usual mundane preoccupations of the vast majority of academic economists. Economists are so obsessed by competition - both in theory and in practice - I have no doubt that when the prize is awarded to people who’ve ventured into genuinely new areas of economic inquiry, a lot of younger economists are both licenced and incentivated to take up pursuit of that new area. For instance, I don’t doubt that a lot of young economists were motivated to take up the study of behavioural economics after the prize was awarded to Daniel Kahneman in 2002. Similarly, the award to the inventor of experimental economics, Vernon Smith, in the same year, would have done wonders to legitimise experimental economics and encourage young PhDs to take it up. The search for “natural experiments” in economics hasn’t looked back.
What I like about the economics Nobel is that some kink in the selection process - perhaps the participation of members of the Royal Swedish Academy of Sciences, including some non-economists, on the selection committee - means it’s always awarding the prize to people whom most academic economists wouldn’t have dreamt of including on their list of likely recipients and, in some cases, have never even heard off. That no economist had heard of Elinor Ostrom - the first woman to win the prize, in 2009, is an indictment of the inward-looking narrowness of the economics profession. Ostrom studied a distinctly economic topic, the tragedy of the commons. Her problem was that she was a political scientist. And she compounded that moral failing by collecting extensive empirical evidence refuting the conventional economists’ conclusion that the obvious answer to the degradation of the commons was to award property rights. Ostrom found numerous examples of people around the world solving the problem by co-operative arrangements and social sanctions. So obsessed are economists by competition and prices that they can’t see the co-operation that’s in front of their noses.
The other thing I like about the economics Nobel is that the committee keeps overlooking all the people economists are convinced will win it, and giving the prize to non-economists. Ostrom wasn’t the first political scientist to win it; Herb Simon was in 1978. Then there was the mathematician John Nash in 1994 and the psychologist Kahneman in 2002. Oliver Williamson, who shared the prize with Ostrom in 2009, is more sociologist than economist.
Eugene Farma, perpetrator of the great hoax known as the efficient markets hypothesis, was top of the staff-room tipping competitions for decades before his name finally came up last year, but the committee redeemed itself by having him share it with Robert Schiller, the behavioural finance guru who has been saying pretty much the opposite to Farma. That’s almost as big a joke as making Hayek share with the Swedish socialist Gunnar Myrdal in 1974.
How will win this year? I have no advance to offer on Paul’s intelligence. Who should win it? Not the makers of some relatively minor advance in econometric technique, nor the elaborators of the conventional wisdom - such as Farma - but those who’ve made advances with what the profession euphemistically refers to as “market imperfections” - that is, all the unrealistic assumptions on which the neo-classical model rests.
Does any Australian stand a chance? I’ve thought Paul Frijters at the University of Queensland was our only hope - the only Aussie doing genuinely insightful research - ever since I read his path-breaking book, An Economic Theory of Greed, Love, Groups and Networks.
