And the Not-Nobel Goes To

Three economists who had the then novel idea of letting real world data drive their theories have won the 2021 Nobel Memorial Prize in Economic Sciences.  (Not an actual Nobel Prize, which was established in Alfred Nobel's will but rather, "officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.")

Their innovation, which ran counter to almost all economic theory at the time, was to look for, "Natural Experiments," where you could compare data from different sources which are subject to different influences, so you track the effect of a minimum wage increase on employment at fast food restaurants across two states, or, as I noted, look at the influence of limited liability through the use of marital assets on the recklessness of bankers.

This is a well deserved award.

Too many times, the accolades have been applied to elegant theories that bear no relationship to reality:

David Card has made a career of studying unintended experiments to examine economic questions — like whether raising the minimum wage causes people to lose jobs.

Joshua D. Angrist and Guido W. Imbens have developed research tools that help economists use real-life situations to test big theories, like how additional education affects earnings.

On Monday, their work earned them the 2021 Nobel Memorial Prize in Economic Sciences.

All three winners are based in the United States. Mr. Card, who was born in Canada, works at the University of California, Berkeley. Mr. Angrist, born in the United States, is at the Massachusetts Institute of Technology, and Mr. Imbens, born in the Netherlands, is at Stanford University.

“Sometimes, nature, or policy changes, provide situations that resemble randomized experiments,” said Peter Fredriksson, chairman of the prize committee. “This year’s laureates have shown that such natural experiments help answer important questions for society.”

………

“They ushered in a new phase in labor economics that has now reached all fields of the profession,” Trevon D. Logan, an economics professor at Ohio State, wrote on Twitter shortly after the prize was announced.

The depressing part about this is that the idea of using reality is considered new and revolutionary in the dismal science, and as such the award, and the recent popularity of the use of real world experiments, are actually an indictment of the field. 

As Richard Feynman said during the investigation of the loss of the Challenger, "For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled."

The same should, but generally does not, apply to economics.