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Economists win Nobel for natural experiments

Guido Imbens                                                             Joshua Angrist                                             David Card

STOCKHOLM: Three US-based academics yesterday won the Nobel Economics Prize for research on the labor market using “natural experiments”, or observational studies, that have revolutionized empirical research in the field, the jury said. Canadian-American David Card, Zionist-American Joshua Angrist and Dutch-American Guido Imbens shared the prize for providing “new insights about the labor market” and showing “what conclusions about cause and effect can be drawn from natural experiments”, the Nobel committee said in a statement.

The Economics Prize wrapped up a male-dominated 2021 Nobel season which saw a total of 12 men win prizes and only one woman. Card won half of the 10-million-kronor ($1.1 million) prize for work focused on the labor market effects of minimum wages, immigration and education.

The Canadian-born professor at the University of California in Berkeley was caught off guard by the nod. “I don’t think I would have been a very high probability,” he told the Nobel Foundation, explaining that he was talking to them wearing pajamas. In natural experiments, researchers study the result of chance events or policy changes on groups of people, unlike other experiments where scientists have control over their subjects.

Card’s studies from the early 1990s, where he evaluated the effects of a raised minimum wage in New Jersey, showed for example that raising the minimum wage does not necessarily lead to fewer jobs. Focusing on fast-food workers, Card used eastern Pennsylvania, which has similar labor market, as a control group. Card also used other natural experiments – such as the sudden influx of 125,000 Cubans to the US in 1980 – to study the impact of immigration and education.

“We now know that the incomes of people who were born in a country can benefit from new immigration, while people who immigrated at an earlier time risk being negatively affected. We have also realized that resources in schools are far more important for students’ future labor market success than was previously thought,” the Nobel committee said.

However, data from a natural experiment are difficult to interpret. For their work helping to solve that methodological problem, the other half of the prize went jointly to Angrist, 61, a professor at the Massachusetts Institute of Technology (MIT), and Imbens, a 58-year-old professor at Stanford. In research they conducted in the mid-1990s, they demonstrated how “precise conclusions about cause and effect can be drawn”, and specifically what conclusions can be drawn.

The framework they developed has been widely adopted by researchers who work with observational data. “By clarifying the assumptions necessary to establish a causal relationship, their framework has also increased the transparency – and thus credibility – of empirical research,” the committee said. “I was absolutely stunned to get a telephone call,” Imbens told reporters during a phone interview following the announcement.

“Josh Angrist was actually the best man at my wedding so he is a good friend, both professionally and personally, and I’m just thrilled to share the prize with him and David,” he added. Dutch Prime Minister Mark Rutte congratulated the Eindhoven-born economist. “A world achievement with a Dutch touch. Congratulations!,” Rutte said in a tweet.

The three laureates “have revolutionized empirical work in economics. They have shown that it’s indeed possible to answer important questions, even when it’s not possible to conduct randomized experiments,” Nobel Committee member Eva Mork told reporters. Last year, the honor went to US economists Paul Milgrom and Robert Wilson for their work on theories of auctions as well as inventing new auction formats.

The Economics Prize is the only Nobel not among the original five prizes set out by the will of Alfred Nobel, who died in 1896. It was instead created through a donation from the Swedish central bank in 1968, and detractors have thus dubbed it “a false Nobel”.

Just like this year, the Economics Prize has generally been male-dominated. It has only been awarded to two women since it was first awarded in 1969: Elinor Ostrom in 2009 and Esther Duflo in 2019. The only woman to win a Nobel Prize this year is investigative journalist Maria Ressa of the Philippines, who shared the Peace Prize with Dmitry Muratov of Russia for their work promoting freedom of expression at a time when liberty of the press is increasingly under threat. – AFP


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