Neo-classical Economics !
Nobel Prize Winners in Economics ...
Evolutionary economic theory originates outside the orthodox neo-classical tradition, however that tradition is enriched not contradicted. Neo-classical theory becomes a special case in a much more complex reality.
The Nobel Prize winners have a deserved position of acclaim and influence and the evolution of neo-classical economics can be traced through their work.
The Nobel Foundation website contains a wealth of information so here we go from last year to the first award in 1969 ...
2007 Leo Hurwicz - Mechanism Design & Moral Hazard
Rent seeking & incentives to cheat. Not winner takes all but if you cut the pie, I choose which piece.
Roger Myerson – ‘Democracy can’t come by edict, only by institutional mechanisms that ensure politicians compete for the trust of voters’.
2006 Edmund Phelps – Short /Long term Tradeoffs
The expectations augmented Phillips curve indicates low inflation today leads to expectations of low inflation in the future and informs policy. Long-run rate of unemployment depends on the functioning of the labour market.
Short term/long term tradeoffs also influence investment decisions. By foregoing consumption for investment in physical as well as human capital, today's generation can raise the welfare of future generations, raising possible distributional conflicts between generations.
2005 Thomas Schelling – Conflict Resolution
Second strike – not belligerence but tit for tat co-operation and retaliation. But did it work in Vietnam?
2004 Edward Prescott – Time Consistency
In a dynamic game a player's best plan for some future period will not be optimal when that future period arrives.
2003 Robert Engle & Clive Granger – Time Series Extrapolations
Take risks that are worthwhile. Volatility clustering and short/long term cointegration.
2002 Daniel Kahneman – Prospect Theory
Instinctively risk averse when a benefit is involved, and risk seeking when a loss is involved. An irrational tendency to be less willing to gamble with hard earned profits than with losses ... utility functions depend on changes in the value rather than the absolute value. Put another way, utility comes from returns, not from the value of assets.
1. gut feel is honed by evolution and usually very efficient but reasoning skills, testing in the imagination is more difficult = bat + ball = $1.10, bat = $1, ball = 10 cents
2. risk averse = - £1,000 tails, + £1,500 heads? No way unless 2:1.
3. status quo = losses loom larger than gains.
4. endowment = hard won stamp collections are valued in excess of their market value.
5. negotiations = hard won customs and practices are valued in excess of their market value.
Cultural Learning = recognise the bias, counterintuitive behaviour which secures economic benefits survive. Frank Field, work, thrift, honesty & Doha not apocalypse now, Armageddon, global warming, resource depletion, slavery, welfare states, collateral damage, AIDS, BSE, foot & mouth …
2001 George Akerlof – Adverse Selection
Only lemons will be on sale.
Joseph Stiglitz – Monopolistic Competition
Market equilibrium is not the norm.
2000 James Heckman & DanielMcFadden – Selective Samples & Discrete Choice
1999 Robert Mundell
I998 Amartya Sen – Welfare Economics
1997 Robert Merton Myron Scholes - Valuation of Derivatives
Valuations are logical and there are opportunities to profit from information asymmetries and arbitrage. Long Term Capital Management exploited 'convergence trades' where Government Bond valuations tend to converge. But these trades are dependent on orderly markets and availability of buyers and sellers. In 1998 (and before) Governments defaulted! Flights to liquidity can destroy all 'schemes', even sophisticated computer schemes, Keynes was succinct, 'the markets can stay irrational longer than you can stay solvent'!
1996 James Mirrlees William Vickrey
I995 Robert Lucas – Rational Expectations
1994 John Harsanyi John Nash Reinhard Selten
I993 Douglass North – Economic Institutions
1992 Gary Becker
I991 Ronald Coase – Social Costs
1990 Harry Markowitz Merton Miller William Sharpe
1989 Trygve Haavelmo
1988 Maurice Allais
I987 Robert Solow – Growth Accounting
1986 James Buchanan
1985 Franco Modigliani
1984 Richard Stone
1983 Gerard Debreu
1982 George Stigler
1981 James Tobin – 'Know how' and Share Valuations
James Tobin defined q as the ratio of share value to net worth, q values are historically high.
Is this because shares overvalued or because returns are dependent on 'know how' not on tangible assets?
'Know how' = technological & institutional innovation = understanding and useful practice.
1980 lawrence Klein
1979 Theodore Schultz Sir Arthur Lewis
I978 Herbert Simon – Satisficing
I976 Milton Friedman – Monetarism
1975 Leonid Kantorovich Tjalling Koopmans
I974 Friedrich Hayek – Fatal Conceit
Complexity cannot be managed. Gunnar Myrdal,
1973 Wassily Leontief
1972 Kenneth Arrow – Impossibility Theorem
Mathematical proof that there is no method, majority voting or otherwise, for constructing social preferences from arbitrary individual preferences. No system can be both rational and egalitarian.
1971 Simon Kuznets
1970 Paul Samuelson
1969 Ragnar Frisch Jan Tinbergen