Finance: Research, Policy and Anecdotes

This year’s Economics Nobel Prize drew as much attention because of the research area where it was awarded (auctions) as it was for the reaction to it.   There were two strands of negative criticisms to it, which I would like to address. One, two old white men from one of the top US elite universities shared the prize, putting in focus yet again the lack of diversity in economics. While I share the concerns on diversity, it seems ludicrous to demand that there be gender and ethnic/national/school quota on Nobel Prizes.  The diversity problem cannot be resolved by starting an affirmative policy programme at the Nobel Prize award level, but progress rather has to be made at the bottom of the pyramid of our profession, undergraduate and post-graduate students in economics, followed by biases in publication and tenure processes and ultimately biases in the appointment processes for senior positions (full professors, editors, presidents of professional associations etc.).

The second criticism is on the topic, auction theory (best illustrated by Branko Milanovic’s twitter thread). First, there is the point that the insights provided by Milgrom, Wilson and others are simply not relevant for today’s problems – here I would strongly disagree (much better documented here and here). Obviously, there will always be debates about what fields are most relevant for humanity’s future and welfare, but dismissing the progress that has been made in this field seems a bit simplistic if not simply wrong.   Second, there is the point that the Nobel Prizes are mostly (though not always, as last year’s award shows) backward looking. Here I am of split mind. The tradition has been to wait for the award of a Nobel Prize until the dust has settled on new path-breaking insights. Not all new attention-catching findings stand the test of time (take the example of the relationship between inequality and growth or the effectiveness of development aid), so the delay in awarding Nobel Prizes might be a healthy one. Such a time gap might also avoid politicising the Nobel Prize – the Peace Nobel Prize has been the opposite: awarding it to President Obama (and I write here as a supporter of him and – in broad terms – his policies) in 2009 was certainly too early. Awarding it in 2016 to the Colombian president for the peace process in his country was premature, given the rejection of the peace agreement shortly afterwards in a referendum and the struggle this process still encounters. One might think that the COVID crisis calls for an award decision that reflects the current policy challenges – this, however, ignores that we won’t know until five or ten years down the road of what has worked and what has not. Similarly, insisting that the prize be awarded for research on currently “hot” topics – artificial intelligence, the future of work, climate change – ignores that this research is on-going and is being vetted as we speak. 

In summary, there are trade-offs in such an award. As I detailed above, I would argue that most of the critiques are simply wrong. Maybe one solution is to simply reduce the focus on such award and go back to celebrate the rigour of on-going and existing research and focus on on-going research and policy debates and treat the Nobel Prize as the equivalent of a life-time Oscar award.

Overview