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Economics Nobel for 2000 Announced

James J. Heckman

University of
Chicago, USA

Daniel L.
McFadden


University of
California, Berkeley, USA.

From the Nobel
Prize press release: “In the field of microeconometrics, each of the laureates
has developed theory and methods that are widely used in the empirical
analysis of individual and household behavior, within economics as well
as other social sciences.”

Or, more specifically,
“…to James Heckman for his development of theory and methods for analyzing
selective samples and to Daniel McFadden for his development of theory
and methods for analyzing discrete choice. ”

Say again?

I often try to
explain or use a piece of economic theory in such a way that a general
audience can understand. My first inclination was to do the same with the
contributions of the newest Nobel Laureates. However, the Nobel Prize committee
did a fairly good job at this kind of a summary (see below), and any specific
summary that I would do here would not do justice to a complex subject.
If you are interested in a summary of the specific work by the winners,
see the official summaries of the Nobel Prize committee – in particular,
the 20 minute webcast
is pretty good.

I would like to
comment briefly in the most general terms on their contributions to the
field, and what it says about economics as a field of study.

In the most general
terms, each researcher developed complex tools with allow investigators
to answer complex real-world problems. The prize was not so much
awarded for the answer to a specific applied question, rather, it was for
the development of tools that researchers could use to answer questions
about economics phenomenon – i.e. about human behavior. (The two did, of
course, use their own tools to answer questions about real world problems,
but their main contribution was the method of investigation rather than
the results of the particular investigations.)

An interesting
thing about their tools is the following: if you don’t use their methods,
you can end up with fundamentally flawed or simply incorrect or answers
your questions.

“Economists
say…”

So much of what
is talked about as economics – primarily in the popular press (and especially
during election season) – is presented as opinion. “Economists say…”
is a popular phrase in newspaper and television news. If economic matters
are opinion, then anyone is entitled to their own opinion, right?

The problem with
this logic is that economics is in most ways more like a science than people
think. We have theories, we test theories with hard data. We even sometimes
reject theories. We are obsessed with measurement, and correct measurement,
of a variety of behavioral relations in the economy.

The Nobel Prize
winners deserved the award precisely for this last reason – because they
pointed out the correct way to measure certain kinds of economic behavior.
Their work deserved a prize because doing things right in the measurement
of economic phenomenon is hard – very hard (just ask my econometrics students).

This also means
that opinions on economic matters can indeed be wrong, and with only simple
analysis of data they usually are. Without the kind of complex analysis
and tools developed by the econometricians of the world, we cannot determine
with any confidence the correct answers to economic questions
.

And here lies
the problem. Lots of people want to issue an opinion about some matters
of economic behavior – but few people want to lean the proper methods of
analysis. The result is at best murky thinking, and at worst flawed understanding
and misleading policy. The most famous example is probably the flawed analysis
of intelligence and race in The Bell Curve, but other examples,
both minor and major show up in policy proposals, newspapers, and magazines
daily.

I would hope that
this prize would send a signal that complex questions require complex tools
to analyze properly (and just about all questions involving human choice
– hence economics – are complex). I would hope that as a result, people
with an understanding of econometric analysis will be busier helping people
with their work.

I can hope can’t
I?

For more see:

What
is Econometrics?

More on the
web:


• Assar
Lindbeck has a nice article
on the criteria
that have guided the awards, as well as the selection
process.

• Homepages
of J. Heckman | D.
McFadden


• Official
Nobel Prize Press
Release
, and a video
of the announcement
with an overview of the work of the contributions
of the winners (mostly in english). Overview for general
audiences
| advanced
information
.

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Filed under: Economists

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