2015 Prize in Economic Sciences

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In 1968, Sveriges Riksbank (Sweden’s central bank) established the Prize in Economic Sciences in Memory of Alfred Nobel, founder of the Nobel Prize.

The Prize is based on a donation received by the Nobel Foundation in 1968 from Sveriges Riksbank on the occasion of the Bank’s 300th anniversary. The first Prize in Economic Sciences was awarded to Ragnar Frisch and Jan Tinbergen in 1969.

The Prize in Economic Sciences is awarded by The Royal Swedish Academy of Sciences, Stockholm, Sweden, according to the same principles as for the Nobel Prizes that have been awarded since 1901.

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2015 was awarded to Angus Deaton (Nationality: British, USA) “for his analysis of consumption, poverty, and welfare”.

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To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices. More than anyone else, Angus Deaton has enhanced this understanding. By linking detailed individual choices and aggregate outcomes, his research has helped transform the fields of microeconomics, macroeconomics, and development economics.

The work for which Deaton is now being honored revolves around three central questions:

  1. How do consumers distribute their spending among different goods?

Answering this question is not only necessary for explaining and forecasting actual consumption patterns, but also crucial in evaluating how policy reforms, like changes in consumption taxes, affect the welfare of different groups. In his early work around 1980, Deaton developed the Almost Ideal Demand System – a flexible, yet simple, way of estimating how the demand for each good depends on the prices of all goods and on individual incomes. His approach and its later modifications are now standard tools, both in academia and in practical policy evaluation.

2. How much of society’s income is spent and how much is saved?

To explain capital formation and the magnitudes of business cycles, it is necessary to understand the interplay between income and consumption over time. In a few papers around 1990, Deaton showed that the prevailing consumption theory could not explain the actual relationships if the starting point was aggregate income and consumption. Instead, one should sum up how individuals adapt their own consumption to their individual income, which fluctuates in a very different way to aggregate income. This research clearly demonstrated why the analysis of individual data is key to untangling the patterns we see in aggregate data, an approach that has since become widely adopted in modern macroeconomics.

3. How do we best measure and analyze welfare and poverty?

In his more recent research, Deaton highlights how reliable measures of individual household consumption levels can be used to discern mechanisms behind economic development. His research has uncovered important pitfalls when comparing the extent of poverty across time and place. It has also exemplified how the clever use of household data may shed light on such issues as the relationships between income and calorie intake, and the extent of gender discrimination within the family. Deaton’s focus on household surveys has helped transform development economics from a theoretical field based on aggregate data to an empirical field based on detailed individual data.

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Youngest Laureate in Economic Sciences

To date, the youngest Laureate in Economic Sciences is Kenneth J. Arrow, who was 51 years old when he was awarded in 1972.

Oldest Laureate in Economic Sciences

The oldest Laureate in Economic Sciences to date is Leonid Hurwicz, who was 90 years old when he was awarded in 2007. He is also the oldest Laureate to be awarded in all Prize categories.

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2014: Jean Tirole “for his analysis of market power and regulation”

2013: Eugene F. Fama, Lars Peter Hansen and Robert J. Shiller “for their empirical analysis of asset prices”

2012: Alvin E. Roth and Lloyd S. Shapley “for the theory of stable allocations and the practice of market design”

2011: Thomas J. Sargent and Christopher A. Sims “for their empirical research on cause and effect in the macroeconomy”

2010: Peter A. Diamond, Dale T. Mortensen and Christopher A. Pissarides “for their analysis of markets with search frictions”

2009: Elinor Ostrom “for her analysis of economic governance, especially the commons” and
Oliver E. Williamson “for his analysis of economic governance, especially the boundaries of the firm”

2008: Paul Krugman “for his analysis of trade patterns and location of economic activity”

2007: Leonid Hurwicz, Eric S. Maskin and Roger B. Myerson “for having laid the foundations of mechanism design theory”

2006: Edmund S. Phelps “for his analysis of intertemporal tradeoffs in macroeconomic policy”

2005: Robert J. Aumann and Thomas C. Schelling “for having enhanced our understanding of conflict and cooperation through game-theory analysis”

2004: Finn E. Kydland and Edward C. Prescott “for their contributions to dynamic macroeconomics: the time consistency of economic policy and the driving forces behind business cycles”

2003: Robert F. Engle III “for methods of analyzing economic time series with time-varying volatility (ARCH)” and Clive W.J. Granger “for methods of analyzing economic time series with common trends (cointegration)”

2002: Daniel Kahneman “for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty” and Vernon L. Smith “for having established laboratory experiments as a tool in empirical economic analysis, especially in the study of alternative market mechanisms”

2001: George A. Akerlof, A. Michael Spence and Joseph E. Stiglitz “for their analyses of markets with asymmetric information”

2000: James J. Heckman “for his development of theory and methods for analyzing selective samples” and Daniel L. McFadden “for his development of theory and methods for analyzing discrete choice”

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