9 October 2002
The Royal Swedish Academy of Sciences has decided
that the Bank of Sweden Prize in Economic Sciences in Memory of
Alfred Nobel, 2002, will be shared between
Princeton University, USA
“for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty”
Vernon L. Smith
George Mason University, USA
“for having established laboratory experiments as a tool in empirical economic analysis, especially in the study of alternative market mechanisms”.
Traditionally, much of economic research
has relied on the assumption of a “homo
œconomicus” motivated by self-interest and capable of
rational decision-making. Economics has also been widely
considered a non-experimental science, relying on observation of
real-world economies rather than controlled laboratory
experiments. Nowadays, however, a growing body of research is
devoted to modifying and testing basic economic assumptions;
moreover, economic research relies increasingly on data collected
in the lab rather than in the field. This research has its roots
in two distinct, but currently converging, areas: the analysis of
human judgment and decision-making by cognitive psychologists,
and the empirical testing of predictions from economic theory by
experimental economists. This year’s laureates are the
pioneers in these two research areas.
Daniel Kahneman has integrated insights from psychology into economics, thereby laying the foundation for a new field of research. Kahneman’s main findings concern decision-making under uncertainty, where he has demonstrated how human decisions may systematically depart from those predicted by standard economic theory. Together with Amos Tversky (deceased in 1996), he has formulated prospect theory as an alternative, that better accounts for observed behavior. Kahneman has also discovered how human judgment may take heuristic shortcuts that systematically depart from basic principles of probability. His work has inspired a new generation of researchers in economics and finance to enrich economic theory using insights from cognitive psychology into intrinsic human motivation.
Vernon Smith has laid the foundation for the field of experimental economics. He has developed an array of experimental methods, setting standards for what constitutes a reliable laboratory experiment in economics. In his own experimental work, he has demonstrated the importance of alternative market institutions, e.g., how the revenue expected by a seller depends on the choice of auction method. Smith has also spearheaded “wind-tunnel tests”, where trials of new, alternative market designs – e.g., when deregulating electricity markets – are carried out in the lab before being implemented in practice. His work has been instrumental in establishing experiments as an essential tool in empirical economic analysis.
Daniel Kahneman, born 1934 (68
years) in Tel Aviv, Israel (US and Israeli citizen). PhD from
University of California at Berkeley in 1961. Since 1993, Eugene
Higgins Professor of Psychology and Professor of Public Affairs
at Princeton University, NJ, USA.
Vernon L. Smith, born 1927 (75 years) in Wichita, KS, USA (US citizen). PhD from Harvard University in 1955. Since 2001, Professor of Economics and Law at George Mason University, VA, USA.
The Prize amount: SEK 10 million, will be shared equally among the Laureates
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