Undercover Economist

Why are some prizes more Nobel than others?

On Monday, the winner of the 2008 Nobel prize in economics will be announced. That statement is not quite true: there is no Nobel prize in economics, merely a more recent prize established in memory of Alfred Nobel.

The existence of a quasi-Nobel in economics infuriates some. One objection is that Nobel himself would not have approved. I do not much care. A more serious objection is that economics is not incontrovertibly a science, but then neither is peace or literature.

Nor am I convinced that the economics Nobel is, as some claim, an instrument for the enforcement of orthodoxy. The prize committee has been broad-minded, occasionally even daring. The prize has gone to Keynesians such as James Tobin and to Friedmanites such as, um, Milton Friedman, to a psychologist (Daniel Kahneman), a mathematician (John Nash) and to the unclassifiable Herbert Simon.

Gunnar Myrdal, a socialist politician, shared the prize in 1974 with Margaret Thatcher’s inspiration, Friedrich Hayek. This provoked the joke that economics is the only subject in which two people can share a Nobel prize for saying opposite things. (Myrdal complained that a prize that could be won by the likes of Hayek and Friedman should be abolished.) When Kahneman shared the 2002 prize with Vernon Smith, another joke did the rounds: Smith won the prize for showing that economic theory works, while Kahneman won the prize for showing that it doesn’t. If this isn’t a broad church, I’m not sure what is.

The odd thing is, whether the Nobel memorial prize is a Nobel prize or not surely shouldn’t matter very much: either way, the prize winners are economists considered worthy of distinction. And yet, the Nobel-ity of it does matter, somehow.

The economics Nobel attracts more attention, for example, than the John Bates Clark medal, awarded every two years to the best American economist under the age of 40. This disparity is curious. The Bates Clark medal has gone to many of the same economists, and more promptly. It has a longer pedigree – it was first awarded in 1947, 22 years before the Nobel memorial prize – and it is much rarer. Most early Bates Clark medallists went on to win the Nobel, but many eligible Nobel laureates failed to win the Bates Clark medal – after all, there have been 20 John Bates Clark medallists since 1969, compared with 61 Nobel laureates.

Nobel prizes also attract more attention than, say, the Crafoord Prize, another Swedish prize for sciences. Despite a $500,000 purse, I am still trying to convince myself that the Crafoord Prize actually exists.

All this made me muse about the vagaries of prizes. What is it that makes a prize – the Nobel, the Booker, the Oscars, Olympic gold – truly prestigious? A long history and a sharp public relations team no doubt help.

Yet there is an economic rationality, too. A prize is worth winning if it proves that the winner beat an impressive field on credible criteria. To an extent this is self-fulfilling: lots of people want to win prestigious awards, and that makes them more prestigious. Because everyone wants to win Olympic gold, the victor will be seen to have defeated every important opponent; that is why everyone wants to win Olympic gold.

It’s not easy to begin that process from scratch, but a big purse helps. The prize money attracts a strong field, which legitimises the winner and helps attract another strong field next time.

In the economic jargon, then, successful prizes become “focal points”. We owe that insight to Thomas Schelling, who shared the Nobel prize in 2005. Or was it the 2005 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel? Whatever.

Also published at ft.com.