Wed Oct 9, 2002

Kahneman's Nobel

Danny Kahneman’s share of a Nobel Prize in Economics (here’s a news story) keeps with a trend in the last 10 years: about every other year or so, the prize has been awarded to researchers who are outside the mainstream of economic thought, whose work draws on research in other social sciences, or whose impact on research has been greater outside economics than inside. (Here’s a list of recent winners, not including this year.)

Kahneman’s work (and that of his collaborators) is all about how people actually make choices, as opposed to how homo economicus does. He focuses on deviations from rational choice that arise mainly from cognitive sources. People just aren’t able to do the information processing that homo economicus can. Instead they employ all kinds of heuristics that can be shown experimentally to lead to irrational choices. He’s also looked a bit at social context and social norms. (We read a Kahneman and Tversky paper in my economic sociology seminar [pdf].) George Akerlof’s research (he was a winner last year) also ranges further afield than most economists. He’s best known for his famous “Market for Lemons” paper, but his An Economic Theorist’s Book of Tales ranges over all kinds of fascinating territory. Amartya Sen’s work is similarly wide-ranging and challenging. Douglass North’s work has been a long-term migration towards a more sociological conception of institutions and away from the assumption that institutions tend to become more efficient over time. And Ronald Coase’s argument about transactions costs has probably had more impact in law and sociology than in economics. A good portion of his book The Firm, the Market and the Law is given over to irritation at how economists focused on the idea that the initial allocation of rights didn’t matter in a world without transactions costs (because parties could always costlessly bargain their rights as they pleased, and the overall social product would be the same), when the point of his most famous paper (“The Nature of the Firm”) was that there were always transactions costs, and it was an empirical question what they were and what their effects would be.

All to the good—- though I’ve sometimes wondered whether giving prizes to mavericks is a way of neutering them. “Can’t say we haven’t been listening to your criticisms, mate—- we gave you a Nobel. Now let me get back to work.” The person I’d really like to see get the prize, though, is Albert Hirschman [pdf], who is still out at the Institute for Advanced Study. I just re-read some essays in his Rival Views of Market Society the other day and immediately found some stuff relevant to the book I’m supposed to be writing. If you want to spend an instructive few hours deepening your perspective on modern economic discourse, you could do worse than read Hirschman’s brilliant essay The Passions and the Interests.