The Nobel Memorial Prize in Economic Sciences is notably one of the most distinguished awards to receive among economists. It is among the six categories of Nobel prizes awarded each year, but it was a late comer to the scene. In fact, this award was only added to the list of Nobel prizes in 1968, which was 67 years after the other category awards. Sweden’s central bank, known as Sveriges Riksbank, donated the funds to add this category to existing Nobel prizes. Since that time, a number of notable Nobel Prize winners in economics have received this distinction. And their accomplishments have made significant contributions to the world’s understanding of economics in the process.
The determination of who receives the Nobel Memorial Prize in Economic Sciences is similar to other award decisions. Requests to hundreds of reputable scholars, professors, and experts in the field are made for nominations each year. From these, the delegation committee chooses who should receive the honor. As is the case in other Nobel categories, more than one awardee may be selected to share the prize. And the committee tends to select those whose theory or work has been well-validated rather than choosing cutting-edge work. With that said, the following lists a few of the notable Nobel Prize winners in economics over the past several decades.
Milton Friedman – Notable Nobel Prize Winner in Economics 1976
Milton Friedman is certainly one of the earliest and most notable winners of the Nobel Memorial Prize in Economic Sciences. As a prominent figure at the University of Chicago School of Economics, he was recognized for his more rational approach to consumption and monetary policy. He opposed many aspects of Keynesian economics, which he labeled as naïve. Instead, he advocated a more mainstream approach to economics analysis that favored free markets and less government. He was, however, a proponent of monetarism, which believed government needed to play a role in monetary supply. His views were highly influential, especially in economic policies developed later in the 1980s.
Harry Merkowitz, Merton Miller, and William Sharpe – Notable Nobel Prize Winners in Economics 1990
In the 1950s, Harry Markowitz developed a theory of portfolio choice that described the allocation of financial assets under uncertainty. In the 1960s, William Sharpe developed a theory of price formation for financial assets called the Capital Asset Pricing Model. And in the 1970s, William Sharpe created the theory of corporate finance and the evaluation of firms along with their effect on markets. Together, these three recipients of the Nobel Memorial Prize in Economic Sciences made a tremendous impact on the understanding of financial markets and financial economics. As such, each of these three individuals were recognized in 1990 for their breakthrough contributions.
John Nash, John C. Harsanyi, and Reinhard Selten – Notable Nobel Prize Winners in Economics 1994
One of the most interesting and important analytical tools in economics today involves the use of game theory. Believe it or not, game theory has actually been around for more than half of a century. In 1994, the recipients of the Nobel Memorial Prize in Economic Sciences each advanced understandings of this important concept. John F. Nash introduced the distinction between cooperative games, which involve binding agreements, and non-cooperative games. Reinhard Selten refined Nash’s concepts of game theory in analyzing dynamic strategic interaction. And John C. Harsanyi offers a means of analyzing games with incomplete information, which launched the economics of information field. Their theories and research continue to impact economic analysis currently.
Robert Merton and Myron Scholes – Notable Nobel Prize Winners in Economics 1997
Those participating in options and derivatives markets must be able to accurately assess risks. In part, this assessment demands a proper valuation of these derivatives. The recipients of the Nobel Memorial Prize in Economic Sciences in 1997 made major contributions in this area. The collectively developed a new method for determining these values. Myron Scholes developed this method in close collaboration with Fischer Black, who died in 1995. The resultant Black-Scholes formula is used by thousands of traders and investors today. Likewise, Robert Merton then adapted this formula for use in many other areas of economics. The work of these economists subsequently laid the groundwork for tremendous growth of the derivatives market.
Daniel Kahneman – Notable Nobel Prize Winner in Economics 2002
As the recipient of the 2002 Nobel Memorial Prize in Economic Sciences, Daniel Kahneman is a select awards member. Few winners can claim they launched an entirely new field of economics, by Professor Kahneman can. Known today as behavioral economics, he explored human decision-making under situations of uncertainty. Through his study, he shows how human decisions systematically depart from standard economic theory and rational thinking. Together with Amos Tversky, who died in 1996, he created Prospect Theory as an alternative that better accounts for observed behavior. This theory incorporates various implicit biases and other assumptions often made that cause individuals to stray from rational decision-making. Both as a tool for understanding and predicting, Prospect Theory has had major impacts on economics. And Kahneman’s work has also bridged the gaps between psychology and economics to a tremendous extent.
Bernard S. Bernanke, Douglas Diamond, and Philip H. Dybvig – Notable Nobel Prize Winners in Economics 2022
The financial crisis of 2008 was devastating to economies and households alike, and addressing the crisis required expertise. For this reason, the 2002 Nobel Memorial Prize in Economic Sciences was shared by three influential economists. Ben Bernanke, through a deep understanding of the Great Depression, showed how deterring bank runs can prevent crisis worsening. Douglas Diamond and Philip Dybvig highlighted the key roles banks play in bridging gaps between savings and investments. And Diamond individually identified banks as being crucial to the societal function of determining borrower credit-worthiness. Their contributions both before and after the 2008 financial crisis are noteworthy. And their actions and recommendations demonstrated the merit of their insights.