PREVIEW-In Nobel prizes, economics and fashion don't mix
12 Oct 2007 11:16:46 GMT Source: Reuters
(Corrects word in 4th paragraph to "Undercover" from "Underground") By Adam Cox STOCKHOLM, Oct 11 (Reuters) - House prices, churning markets and global imbalances may be today's burning issues, but don't bet on any of these figuring in the next Nobel economics prize. Or then again, maybe all three will. For a field about forecasting, economics has proved ironically to be one of the toughest awards to call -- partly because Nobel panellists historically have veered away from the fashionable economic ideas of the day. "It is wonderfully hard to predict," said Tim Harford, a columnist and author of "The Undercover Economist". Panel members often want to know if a theory works and they are willing to wait years, or decades, to find out. "The nature of a social science is that it's very hard to say, 'We found this thing and we know it's true and it's going to turn the world upside down'," Harford said. "We really have to see whether an idea proves to be widely adopted and useful." The "Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel" is due to be announced in Stockholm on Monday. A late addition to the Nobel prize family, economics became a category in 1968, well after awards for peace, literature and sciences began in 1901 as per the will of the dynamite tycoon. Harford said many Nobels through the years have gone to older economists as the prize cannot be awarded posthumously and the committee wanted to recognise key figures before they died. Swedish banking group Swedbank, which publishes an annual list of its best guesses, said the committee is most likely to favour innovative work that is 15 to 25 years old. "Relatively young -- though successful -- research thus has very slim chances of being awarded," the bank said. NEW PARADIGM Joseph Stiglitz, a co-winner of the 2001 award, is someone who knows first-hand about the slow acceptance of ideas. Upon receiving the prize, for his work with George Akerlof and Michael Spence on markets with asymmetric information, Stiglitz said he wanted to show that "information economics" represented a new theoretical framework. "A very large fraction of work in economics today is conducted within this new paradigm," Stiglitz told Reuters in a telephone interview. But Stiglitz, Akerlof and Spence had done a good deal of their research in the 1960s and 1970s. There are those who today argue strongly against the trio's work, which posited that markets do not always reflect perfect information. "There's a big intellectual battle," Stiglitz said. He said the Asia crisis of 1997, the bursting of the dot com bubble and current turbulence in markets over sub-prime mortgages illustrated his theories. Stiglitz's choice for a Nobel is Partha Dasgupta, who has worked with him and done research on environmental economics -- "the importance of which we've just begun to appreciate". He quickly added that was not a forecast but an opinion. Harford, who writes for the Financial Times, identified three possibilities, all American: Eugene Fama for his research in finance, Robert Barro for his work on growth theory, and William Nordhaus for studies in environmental sciences. "He's one of the leading economists writing about global warming," the author said. But he too added: "To be honest I would be surprised if any of them were picked." British betting agency Ladbrokes has Fama at 8-1 and Barro at 9-1. Environmental economists Dasgupta and Nordhaus were not among its favourites. Israeli economist Elhanan Helpman and Princeton's Gene Grossman were top picks at 4-1 each. Stanford's Paul Romer, Chris Pissarides of the London School of Economics, MIT's Peter Diamond and Paul Krugman and Dale Mortensen of Princeton were also among the favourites. "It's probably the hardest market we have to price because of the secrecy," said Nick Weinberg of Ladbrokes. "We've got a couple of Nobel experts in Scandinavia who will look for certain trends." He declined to name them. Barro and Fama also both figure among Swedbank's picks.
