Daniel L. McFadden’s speech at the Nobel Banquet, December 10, 2000
Your Majesties, Your Royal Highnesses, Ladies and Gentlemen,
The term “economics”, in its original Greek, means “of the hearth”, the ancient and practical science of household management. Over the millennia, the discipline has transformed itself into a grander enterprise, speaking sagely of the organization of economies, and admonishing capitalists and kings on incentives, constraints, and unintended consequences. This is important business, but economists have felt the loss of their practical side. In the words of John Maynard Keynes, “If economists could manage to get themselves thought of as humble, competent people, on a level with dentists, that would be splendid!”.
I think of the public edifice of economics as being like the inflatable buildings that cover tennis courts in cold climates, entirely supported by air. Yet, the air has a direction and purpose, and is the result of carefully designed and systematically maintained mechanical equipment that provides stability and form. It is at this practical, mechanical level, closer to the hearth than to the throne, that the science is put into economic science. Measurements are taken, designs are tested, and new machines are constructed.
Jim Heckman and I are engineers who build and operate machines that explain how people make choices, and how they select themselves into groups. Our machines are crafted with mathematics and live in computers, so they do not fire the public imagination like a new bridge or a new particle accelerator. However, in each case an innovative design can advance the science. Whether it is a well-written novel, a well-made wine, a fine dish, a clever computer chip, or a well-crafted microeconometric analysis, good design instructs, brings pleasure, and lifts the human spirit.
In light of the occasion and this season, and in the language of our subject, Jim Heckman and I offer you the following salutation: May you all select yourselves into the group that advances the welfare of humankind. May all your choices be discrete.