Nobel Prize Winners in Economics

List of Nobel Prize Winners in Economics:- Paul A. Samuelson, Sir John Hicks, Milton Friedman, Amartya Kumar Sen, Robert A Mundell, Joseph E. Stiglitz, Joseph A. Akerlof and A. Micheal Spence, Daniel Kahneman and Vernon Lomax Smith, Robert F. Engle and Clive W.J. Granger, Finn E. Kydland and Edward C Prescott, Thomas Schelling and Robert J. Aumann, Edmund S. Phelps.

Paul A. Samuelson (1970):

Paul A. Samuelson has been awarded the second Nobel prize for economics in 1970 for his brilliant contributions. He has been given Nobel prize for his work, “Development of New Economic Theories” and for finding new applications for old theories. The Swedish Academy, while declaring this award, has rightly said that Samuelson has done more than any other economist to raise the level of scientific analysis in the field of economic theory”.

He has tried his best to shape the U.S. economic and fiscal policies all through. Samuelson was the first to receive the Nobel Prize in Economics from America. Samuelson has always advocated the use of mathematics as a means to explain and explore the economic problem. In 1949, he published the book, “Economics, an Introductory Analysis” which has become world famous. Samuelson remarked that “Economics never was a dismal science. It should be a realistic science”.

Sir John Hicks (1972):

Sir John Hicks of Oxford University was awarded the Nobel Prize in Economics in 1972 along with Kenneth J. Arrow of the United States. Hicks was the first British economist to receive the Nobel Prize. They were awarded the prize for their “pioneering contributions to the general economic equilibrium theory and welfare theory”, As Bertil Ohlin puts it, “The general equilibrium theory is the basis for most of the direct application of economic theory such as the localisation of industrial plant, resource allocation, financial and employment theory and foreign trade, all this being used to increase the welfare of the people”.

Hicks was born in Warwick in 1904. He graduated in 1925 at Oxford. He was a lecturer at the London School of Economics from 1926 to 1935, Cambridge and Oxford Universities. He retired from Oxford University in 1965. He was knighted in 1964.

Prof. Hicks served as a member of the Revenue Allocation Commission for Nigeria in 1960 and on the Royal Commission on the Taxation of Profits and Income. He became a Fellow of All Souls, Fellow of the British Academy and Honorary Fellow of the London School of Economics.

His important works are:

Theory of Wages (1932), Value and Capital (1939), The Social Framework: An Introduction to Economics (1942), The Problem of Budgetary Reform (1948), A Contribution to the Theory of Trade Cycle (1950), A Revision of Demand Theory (1956), Capital and Growth (1965), and Critical Essays in Monetary Theory (1967),

“Value and Capital” is one of the monumental works of Hicks. It became the starting point for the subsequent micro economic theories in Britain and United States. It starts with an elementary problem of consumers preference and leads up to unemployment and the future of capitalism.

The chief characteristic of Hick’s work was that he moved away from the partial equilibrium approach of Alfred Marshall back towards the older “general equilibrium” approach of Walras. He also introduced a dynamic dimension with his work on period analysis and his theory of the elasticity of expectations. This book is one of the rarest books in economic science which marked a definite stage in the advance of a science.

More than any other economist, Hicks has rehabilitated and extended the indifference curve apparatus. The book contains in its first 52 pages, the best exposition of the contemporary theory, The Social Framework and A Revision of Demand Theory are his other pioneering works.

The Social Framework is a beautiful introduction to economics. Prof. Pigou said that, “beginner coming to this book will find concepts with which he has long been familiar in a vague way clarified and given a more significant meaning and that he will also acquire a good deal of actual knowledge”. While praising this book, Prof. Harrod observed that, “It is an introduction to economics written by an economist of the highest calibre. His style is easy and popular… the presentation is straight forward and dignified”.

Hick’s book, ‘A Revision of Demand Theory’ has been acclaimed as “a superb exercise of exposition” and “probably the last word there is to be said on this aspect of demand theory”. He has shown that the law of demand can be extended to study the behaviour of groups from that of individuals. The theory of demand for a single commodity is only the beginning of a demand theory. The general theory of demand is a theory of the relation between the set of prices, at which purchases are made, and the set of quantities which are purchased.

Milton Friedman (1976):

The Nobel Prize for the year 1976 has been awarded to Prof. Milton Friedman of Chicago University. The Royal Swedish Academy while announcing the reward, had said that Friedman had been honoured for his achievements in the fields of Consumption Analysis, Monetary History and Theory, and for his demonstration of the complexity of stabilisation policy.

Friedman was born in 1912 at Brooklyn in New York, studied in Rutgers University, passed out of the Columbia University with a Ph. D. degree in 1946. He had worked as Principal Economist of the tax research division of the United States Treasury Department during 1940-41. From 1941 to 1943, he was the Associate Director of Research of the War Research Division of Columbia. He had worked as Assistant Professor in the University of Minnesota. He was the visiting professor of many of the American Universities.

Friedman is a prolific writer and an outspoken conservative thinker. He is best known for his contributions to the monetary school, which holds that monetary rather than tax and fiscal policy is the most effective means of controlling inflation while keeping unemployment within acceptable means. Friedman was the first South American to be honoured with this award since it was instituted in 1969.

Amartya Kumar Sen (1998):

Amartya Sen has been identified as the single most important thinker in the area of general equilibrium theory and welfare economics after Hicks and Arrow by the Nobel Committee. Sen has been awarded the Nobel Prize in Economics for the year 1998. This is the most significant achievement in economics. Sen is the first Asian and the Indian to achieve this distinction of the Nobel award in economics.

The Nobel citation refers to:

(a) Sen’s contributions to social choice theory

(b) Sen’s work in development economics, specially in the analysis of the relation between poverty and famines and

(c) Sen’s concepts of entitlements and capability development.

Sen’s work covers a vast domain in the above areas. He is proficient in symbolic logic and in the use of the axiomatic approach. His ideas cannot be labelled as belonging to any particular school of political economy. However he should be credited for having established his own special paradigm in welfare economics, particularly in the analysis of the relation between poverty and human development. He has put forth a number of new measures like poverty index and the capability index, which have been attempted to be empirically estimated.

Sen’s social choice theory, his work on Bengal famine, his efforts to relate inequality and the depth of poverty, and his notions of capability and entitlement are the most important contributions to welfare economics. The social choice approach, as generally understood in the tradition of Pareto, Bergson and Arrow, proceeds by treating the community’s aggregate welfare as a function of the welfare of each individual taken separately.

The impossibility theorem of Arrow, in his constitution, was based on the assumptions which are reasonable in the tradition of Pareto, Bergson, etc. Arrow showed that there is no social choice satisfying all the assumptions. Samuelson has argued that Arrow has departed from the approach to social welfare function in Bergson who did not necessarily rule out cardinality and inter-personal comparisons.

Sen’s contributions have also shown this possibility by removing the requirement of ordinarily in the Arrow procedure and substituting it by cardinality and inter-personal comparisons. In later writings Sen seems to have gone against procedures based on utilities.

Sen has argued that the Rawlsian procedure does involve belief in utilities, their diminishing nature and their inter-personal comparisons. This is the way to distinguish between the rich and the poor and among the poor pick out the ultra-poor.

Sen must be complimented for the axiomatic approach to widen the range of social welfare function models. He has tried to bring in the form of his extended social choice approach, issues like poverty, inequality, famine etc.

The field of application of social choice theory in the Sen direction can be equated with alternative political economy and social action models concerning development. It is in this direction to which Sen has taken welfare economics that seems to have won the admiration of the Nobel Committee.

Social decisions are then taken by individuals, each of whom may have a separate sphere in which they do consider improvement in their own well-being, as the dominant yardstick in ranking social choices. Removal of poverty, unemployment, restriction on population growth, control of inflation, provision of subsidized social sector facilities, etc., can be defended on social utilisation grounds in democracies. Ethical consideration need not be brought in.

Robert A Mundell (1999):

Professor Robert Mundell of Columbia University, USA, has been awarded the Nobel Prize in Economics for the year 1999. The Nobel committee in their citation has rightly mentioned about his fundamental theoretical contribution on the inter dependence of monetary and fiscal policy in an integrated world economy under alternative exchange rate regimes when financial capital are perfectly mobile across countries in response to interest rate differentials.

This aspect of his contributions is so fundamental to the theory of economic policy that they are part of any sensible textbook On macro-economic theory that have so far been written. But there are quite a few other theoretical contributions of Prof. Mundell which have influenced many of the contemporary researches on the subject. These areas belong to the theory of international trade and macroeconomics, on which Mundell’s pioneering works have stimulated research as a result of which the current status of the subjects have attained significance.

Joseph E. Stiglitz, Joseph A. Akerlof and A. Micheal Spence (2001):

Three distinguished US economists Dr. Joseph A. Akerlof (61) of the University of California at Berkeley, Dr. A. Micheal Spence (58) of Stanford University and Dr. Joseph E.Stiglitz (58) of Columbia University have been awarded the Nobel prize in economic science on October 10, 2001, for their analyses of markets with asymmetric information, referring to the fact that some market players have better information than others, as cited by the Royal Swedish Academy of Sciences at Stockholm Sweden.

They did their pioneering research in the 1960s and 1970s which incorporated imperfect or asymmetric information into economics in contrast to the mainstream economics. Their basic research has countless applications that extend from traditional agricultural markets in developing countries to modern financial markets in developed countries.

The three distinguished economists pioneered the view that markets, when confronted with imperfections, may not be the best way to allocate resources, that changed “economics”, said Dr.Alankarueger of Princeton University. Their fundamental research convinced the view that government must play a strong role in a market system to prevent damage from imperfect information.

According to the Nobel Committee, Dr.Stiglitz’s work is the broadest of the three. Joseph Stiglitz’s many contributions have transformed the way the economists think about the working of markets, said the citation. Of the three, stiglitz is possibly the most distinguished and prolific economic theorist.

Dr. Akerlof was honoured mainly for an outstanding (1970) essay on the market for Lemons, “which was described by the Nobel Committee as the single most important study in the literature on economics of information”. The Nobel award came to Dr.Spence mainly on the strength of a single path-breaking paper on “Market Signals” published in 1973.

Daniel Kahneman and Vernon Lomax Smith (2002) :

American economists Daniel Kahneman (68) and Vernon L.Smith (75) won the 2002 Nobel Memorial Prize in Economics for their pioneering works in psychological and experimental economics. Daniel Kartneman was born in Telaviv and Vernon Lomax Smith was born in Wichita. Their works highlight the nexus between psychology and economics in explaining decision-making and behaviour of financial markets.

Their research in contrast to the works of conventional economists has brought together the fields of experimental economics and cognitive psychology. Psychology emerged as the top field with economics, paving the way for scientific fraternity to rely less on observation of actual economics in decision-making and more on controlled laboratory experiments.

These economists have been conducting a number of experiments to determine how markets actually work in the real world. These experiments are part of the new fast – growing field of experimental economics, which has provided some very interesting results. Economists “have to invent new wisdom for a new age” and to “appear unorthodox”, said J.M. Keynes. Keynes’s characterization suits well to the two towering American economists in their formation of experimental economics.

Robert F. Engle and Clive W.J. Granger (2003):

The time-series analysts, Robert F. Engle (b. 1942) of the U.S. and Clive W.J. Granger (b.1934) of the U.K., won the 2003 Nobel Economics Prize for their use of statistical methods for economic time- series, the Royal Swedish Academy Sciences said on October 8, 2003 at Stockholm (Sweden).

The Academy said in its citation that the research was used to gather data for time-series, such as chronological observations or for estimating relationships and testing hypotheses in economic theory. Such time series show the development of gross domestic product (GDP), prices, interest rates, stock prices, etc.

Men live with change and the focus of interest of economists will be the nature of the long-run changes in aggregate economy and their implications for the functioning and structure of the economy. An observer looking at the statistical record or even glancing about the past century cannot but be impressed by the pervasive nature of long-run economic change, an ever-changing economy places a premium upon understanding the nature of change and the forms in which it is manifested. Understanding change is essential to the appraisal of future economic conditions, as addressed by Nobel economists. The Nobel prize-winning contributions on statistical analysis rely on time-series data.

R.E. Engle (60) obtained his B. A. Degree from Williams College in 1964, M.S. Degree from Cornell University in 1969 and Ph.D. from Cornell University, His academic affiliation shows that he served as Professor of Economics in the University of California at San Diego since 1975 and also in the Massachusetts from 1969-75. He is currently on the faculty of economics at the New York University. His major field of research reflects time series analysis and econometrics.

C.W.J. Granger (69) received his B.A. Degree in 1955, Ph.D., in 1959 and D.Sc. from the University of Nottingham in 1992. His fields of specialisation include Econometric Modeling and Prices, Business Fluctuations and Cycles.

His main area of research belongs to long run equilibrium of economic series. His analytic probes cover: C.W.J. Granger and P. Newbold, Forecasting Economic Time Series; C.W.J. Granger, Forecasting in Business and Economics. Granger has developed methods that help us model variables that follow trends over time and in particular to estimate relationships between such variables. One example would be exchange rate and relative price levels.

The findings of these laureates’ are important because on financial markets, random fluctuations and volatility can affect share prices and value, along with other financial instruments. Their research had helped economists and financial experts “measure and estimate volatility and how volatility varies over time”. This had most of its applications in financial markets, for instance how the volatility of stock returns and investment returns in general vary overtime.

Finn E. Kydland and Edward C Prescott (2004):

Norweign Finn E.Kydland (60) of Carnegie Mellon University in Pittsburgh, Pennsylvania and the University of California at Santa Barbara and American Edward C.Prescott (63) of Arizona State University, Temple, Arizona, received the 2004 Nobel Memorial Prize in Economic Sciences for shedding light on how government policies and actions affect economics world-wide. They examine the key policy issues and their repercussions stemming from the contributions of the Nobel Laureates for the year 2004.

Thomas Schelling and Robert J. Aumann (2005):

Thomas Schelling, an American and Robert J. Aumann, an Israeli, won the 2005 Nobel Prize in Economics for their game theory to explain conflict resolution. The Royal Swedish Academy of Sciences awarded on October 10, 2005 the $1.30 million prize to Thomas Schelling and Robert Aumann for work that has found uses in “Security and disarmament policies, price formation on markets, as well as economic and political negotiations. Their work has helped in the understanding of trade disputes, organized crime, political decisions and wage negotiations, as well as outright shooting wars.

They did not stop at explaining the economic phenomena alone and had extended their analysis to the study of racial and sexual discrimination. Their work has transformed the social sciences for beyond the boundaries of economics using the game theory-interactive decision scenarios-the laureates concentrated on why some persons and countries managed to cooperate while others suffer from conflict.

The laureates have “enhanced the understanding of conflict and cooperation through game theory analysis”. They have helped to explain economic conflicts such as price wars and trade wars as well as why some communities are more successful than others in managing common pool resources.

Schelling, teaches at the University of Maryland. He produced his main work during the Cold War, which pitted the United States against the Soviet Union, using game theory methods to explain the era’s most vital issues, global security and the arms race.

Robert Aumann, was born in Germany but is an Israeli and U.S. Citizen who teaches at the centre for Rationality at the Hebrew University of Jerusalem. He was cited for his work in looking at how real world situations can affect the theory. In many real world situations cooperation may be easier to sustain in the long-term relationship than in a single encounter.

Proper understanding of any social situation would require game-theoretic analysis. As seen by John. C. Harsanyi, the Nobel laureate, “Game theory is a theory of strategic interaction. That is to say it is a theory of rational behaviour in social situations in which each player has to choose his moves on the basis of what he thinks the other players’ counter moves are likely to be”.

Game theory as first established as a systematic theory in 1944 by Von Neumann and Morgenstern with the publication of “The Theory of Games and Economic behaviour”, and even as it had been further developed up to the late 1960’s, was restricted to games with complete information now extended to games with imperfect information. After Schelling and Aumann, seemingly irrational behaviour could suddenly be explained.

“The repeated – games approach clarifies the raison d’etre of many institutions, ranging from merchant guilds and organized crime to wage negotiations and international trade agreements”. Game-theoretic frameworks have been specifically developed to analyse situations in which ‘players’ or agents interact strategically. Game theory is concerned with the choice of the optimum strategy in conflict situations.

Psychological evidence indicates that most altruistic behaviour is more complex: people do not seek uniformly to help other people; rather, they do show according to how generous these other people are being. Indeed, the same people who are altruistic people are also motivated to hurt who hurt them. Clearly, these emotions have economic implications in game-theoretic situations.

Thomas Schelling has given a wide variety of social interaction situations where the social outcome was surprisingly different from individual motivations.

“The theory of games gets its name and much of its force from an analogy with social games. The rules of the game are social. More generally, individual behaviour is always motivated by social relations”, as remarked by Kenneth J. Arrow, the Nobel Laureate.

Having working on the Marshall plan the U.S. post-war aid programme for battle-ruined Europe and at the White House in the 1950s, Schelling was well placed to examine the rationale behind the superpower’s nuclear standoff.

Schelling’s seminal work, “The Strategy of Conflict” became a classic and has influenced generations of strategic thinkers. “These insights have proven to be of great relevance for conflict resolution and efforts to avoid war”, said the Nobel jury. Building on Schelling’s original ideas Aumann applied the tools of mathematical analysis to highlight the alternatives available to one’s own country and the opponents in times of conflict. Schelling showed that the ability to retaliate can be more useful than the ability to resist an attack and that it may be good to keep the enemy in the dark over how ones retaliation will look.

Some games are not strictly competitive, for there are aspects that make cooperation both beneficial and feasible. Such games are called cooperative games. Cooperative games are defined explicitly as having the feature that players can make agreements regarding the strategies they will play. Such agreements can drastically affect the outcome of the game. In a cooperative game an agreement is made by a coalition.

Edmund S. Phelps (2006):

Edmund S. Phelps (73) an American Economist, a New Keynesian won the Nobel Economics Prize on October 9, 2006 for his analysis of short-term and long-term trade-offs in macro-economic policy. Great men with glittering credentials in the field of economics are honoured for their prodigious intellectual resources and path-breaking contributions by the Swedish Academy of Science at Stockholm from 1969. The Swedish Academy recognized eminent men by considering “not only the extension of knowledge for knowledge’s own sake, but also its applied aspects, its potential benefits to making”.

Background:

Edmund S.Phelps born in 1933 was educated at Amherst College, obtained his B. A. degree in 1955 and got his Ph.D from Yale University in 1959. He has been the Professor of Economics at New York University during 1978-79 and has also taught economics at University of Paris during 1968-71. He is currently a Professor of Political Economy in the Department of Economics at Columbia University, New York and working since 1971.

His research interest includes Political Economy, Unemployment, Monetary and Fiscal Policy and Public Finance. His publications include pioneering theoretical and empirical contributions to economic analysis that have ranged over such varied topics as Micro Foundations of Macro Economics (New Micro Economics), Inflation Theory, Modern Market Theory of Labour Market (Search Theory), Expectation Model and New Keynesian Theory and Golden Rule of Accumulation (Neo Classical Growth Model).

The Nobel Committee honoured Prof. Phelps for explaining how economic policies to deal with inflation and unemployment today, can have big effects on behaviour and welfare in future. Phelps recognised that inflation does not only depend on unemployment but also on the expectations of firms and employees about price and wage increases.

His work is characterized by a strong practical content. He has devoted his attention to real problems. As observed by John Kenneth Galbraith: “Economics deals with matters which men consider very close-to their lives”.

Phelps has emphasized that not only the issue of savings and capital formation but also the balance between inflation and unemployment are fundamental issues about the distribution of welfare over time. Previously economists believed that a fall in unemployment would cause a rise in inflation. As a result, Governments tended to regard inflation as a secondary problems to unemployment. But in the late 1960s Phelps challenged that view.