Nobel Memorial Prize in Economics: What It is, Methodology, FAQs

What Is the Nobel Memorial Prize in Economic Sciences?

The Nobel Memorial Prize in Economic Sciences is a prestigious award acknowledging outstanding contributions to the field of economics. It is commonly called the Nobel Prize in Economics.

Understanding the Nobel Memorial Prize in Economic Sciences

The official name for the Nobel Memorial Prize in Economic Sciences is the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel and named after the Sveriges Riksbank which made a donation to initiate the award.

The esteemed Nobel Prize in Economics is awarded yearly to individuals making exceptional contributions to the field of economics. In his will, Swedish scientist, inventor, entrepreneur, author, and pacifist Alfred Nobel, the man who the prize is named after, left much of his large estate to establish awards in physics, chemistry, physiology or medicine, literature, and peace.

Economics was added to that list 67 years later in 1968, courtesy of Sweden's central bank. The Sveriges Riksbank, as it is known locally, made a donation during its 300^th anniversary to facilitate celebrating the brightest minds in economics. The award was named in memory of Alfred Nobel, one of the country's biggest heroes, and became recognized as the sixth Nobel Prize.

An endowment from Sweden's central bank provides funding in perpetuity to pay the Nobel Foundation's administrative expenses pertaining to the award alongside the monetary prize. For 2021 all of the Nobel prize awards are valued at 10 million Swedish krona (SEK) or approximately USD$1,150,000 per medal, which is commonly split among several category awardees.

As of 2021, the Nobel Prize awards include the following:

1. Nobel Prize in Physics
2. Nobel Prize in Chemistry
3. Nobel Prize in Physiology or Medicine
4. Nobel Prize in Literature
5. Nobel Peace Prize
6. Nobel Prize in Economic Sciences

The first prize in economics was awarded in 1969 to Ragnar Frisch and Jan Tinbergen for their development and application of dynamic models for the analysis of economic processes. Other prominent winners include:

• (1976) Milton Friedman for achievements in the fields of consumption analysis, monetary history, and theory, and for the demonstration of the complexity of stabilization policy
• (1979) Arthur Lewis for work in development economics
• (1990) Harry Markowitz, Merton Miller, and William Sharpe for work in the theory of financial economics
• (1994) John Nash and Reinhard Selten for their analysis of equilibria in the theory of non-cooperative games

In 2009, Elinor Ostrom became the first female recipient, winning the award along with economist Oliver Williamson for their scholarly work showing how communities can successfully share common resources, such as waterways, livestock grazing land, and forests, through collective property rights.

Nobel Prize in Economic Sciences Methodology

Each year, the prize committee sends out invitations to thousands of scientists, members of academies, and university professors in numerous countries, asking them to nominate candidates for the coming year. Members of the Royal Swedish Academy of Sciences and former laureates are also authorized to nominate candidates.

The proposals are reviewed by the prize committee and specially appointed experts. Before the end of September, the committee chooses potential laureates. If there is a tie, the chair of the committee casts the deciding vote. Next, the potential laureates must be approved by the Royal Swedish Academy of Sciences, the independent, non-governmental organization responsible for awarding the Nobel Prize in Economics.

Awards are presented at the annual Nobel Prize award ceremony in Stockholm, Sweden each year on Dec. 10, the anniversary of Nobel's death. A maximum of three individuals can share a prize during the same year.

In economics, it can take years for a theory to be proved effective. That means that the Nobel Prize in Economic Sciences tends to refrain from recognizing fresh, cutting-edge research, waiting for ideas to become validated before crowning them as outstanding. For example, Robert Merton and Myron Scholes were awarded the prize in 1997 for a formula they first developed in 1973. The Black-Scholes Model, as it is known, determines fair prices of options and is widely considered to be one of the most important concepts in modern financial theory.

Fischer Black was also credited as a pioneer of the Black-Scholes Model but was not a recipient of the Nobel Prize in Economics because he passed away in 1995. Rules against dishing out posthumous awards also explain why some of the world's most famous and influential economists, such as Adam Smith, John Maynard Keynes, and Ludwig von Mises have never won the esteemed economics award.