My Bloomberg column on the two new Laureates

by on October 10, 2016 at 12:02 pm in Economics | Permalink

Read it here, this is one short bit:

They’ve built a technical framework for other researchers to build on, which is much harder to do than to throw off useful insights. So don’t be underwhelmed if some of their work, when conveyed in sound bites, seems like something you heard last week at the water cooler.

Overall a simpler take than what you can read on MR below.

1 Anon October 10, 2016 at 12:40 pm

Thanks, very well written.
2 years ago you had written ……”One point is that some other economists, such as Oliver Hart and Bengt Holmstrom, may be disappointed they were not joint picks,” ( ….with Tirole) . Now they have the better part of the Contract.

2 jill October 10, 2016 at 1:04 pm

“Hart, again with co-authors, also wrote a seminal paper on when we should prefer government over private-sector ownership. Most of us prefer to eat in private rather than government-owned restaurants because we believe we’ll get lower costs, tastier food, and more innovation. At the same time, private prisons may not be such a great idea. Prison companies will try to cut costs, but the result may be facilities that are insufficiently humane. Sometimes the apparently inefficient bureaucracy does a better job helping to meet social goals.”

This kind of work is definitely worth the prize– to look at the situations and what would work in them, rather than just trying to prove an ideological bias, as many studies seem to try to do e.g. that government ownership is THE WAY, or that private-sector ownership, is THE WAY.

3 Ray Lopez October 10, 2016 at 1:22 pm

I thought the Nobel prize for these two was trivial “In the 1970s, Bengt Holmstrom showed how contracts could effectively link managers’ pay to their performance ” – c’mon! Isn’t that obvious? This prize for economics should be just abolished.

4 Yancey Ward October 10, 2016 at 1:40 pm

Ray,

It is often useful to have mathematical formulations of things people have already discovered through experience. Considering the awards given to prior recipients, I kind of like this choice better than most of those.

5 Anon October 10, 2016 at 3:53 pm

Prescient of TC to anticipate your objections:

……. if some of their work, when conveyed in sound bites, seems like something you heard last week at the water cooler.”

But you have a valid point about a Nobel for economics. Here is Hayek:

“I must confess that if I had been consulted whether to establish a Nobel Prize in economics, I should have decidedly advised against it.

One reason was that I feared that such a prize, as I believe is true of the activities of some of the great scientific foundations, would tend to accentuate the swings of scientific fashion.

This apprehension the selection committee has brilliantly refuted by awarding the prize to one whose views are as unfashionable as mine are.

I do not yet feel equally reassured concerning my second cause of apprehension.

It is that the Nobel Prize confers on an individual an authority which in economics no man ought to possess.

This does not matter in the natural sciences. Here the influence exercised by an individual is chiefly an influence on his fellow experts; and they will soon cut him down to size if he exceeds his competence.

But the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally….”

6 jill October 10, 2016 at 1:13 pm

This is fantastic too.

“Both of this year’s winners have spent a lot of time interacting with the private sector and also with governments. That is what helped them build relatively abstract frameworks that would prove so useful to the further progress of research. If that isn’t always so obvious at first glance, well, that is in part why not everyone wins a Nobel Prize.”

One of the biggest hidden problems with much research and theory is that researchers and theorists ask the wrong questions. They may determine what questions to ask, by using their ideological beliefs, by looking at their extremely limited and non-representative experiences with the phenomena they are researching, or by other less than ideal means. Spending A LOT of time interacting with the private sector and also with governments– or with whatever area you are researching or theorizing about– is actually worth MORE for the later users of the research and theory, than time spent in the lab or library or office. Because only in that way can the researcher/theorist become sufficiently aware of the breadth and depth of the issues s/he is looking at, the problems that most need solving, and the questions that most need answering.

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