Nobel economics prize goes to ‘natural experiments’ pioneers

Permanent Secretary of the Royal Swedish Academy of Sciences Goran K Hansson (bottom, center) announces the 2021 Nobel prize for economics, flanked by members of the Royal Swedish Academy of Sciences Peter Fredriksson (bottom, left) and Eva Mork, during a press conference at the Royal Swedish Academy of Sciences, in Stockholm, Sweden, Oct 11, 2021. From left on the screen above are the winners David Card of the University of California at Berkeley; Joshua Angrist from the Massachusetts Institute of Technology; and Guido Imbens from Stanford University. (CLAUDIO BRESCIANI / TT VIA AP)

STOCKHOLM – Economists David Card, Joshua Angrist and Guido Imbens won the 2021 Nobel economics prize on Monday for pioneering the use of "natural experiments" to understand the causal effects of economic policy and other events.

Unlike in medicine or other sciences, economists cannot conduct rigidly controlled clinical trials. Instead, natural experiments use real-life situations to study impacts on the world, an approach that has spread to other social sciences.

David Card took half the prize "for his empirical contributions to labour economics", the Royal Swedish Academy of Sciences said said. Joshua Angrist and Guido Imbens shared the other half "for their methodological contributions to the analysis of causal relationships"

"Their research has substantially improved our ability to answer key causal questions, which has been of great benefit to society," says Peter Fredriksson, chair of the Economic Sciences Prize Committee.

Past Nobel Economics prizes have been dominated by US institutions and this was no exception. Canada-born Card currently works at the University of California, Berkeley; Angrist at Massachusetts Institute of Technology; and Dutch-born Imbens at Stanford University.

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Questions about cause and effect

One experiment by Card on the impact on the fast-food sector of a minimum wage increase in the US state of New Jersey in the early 1990s prompted a review of the conventional wisdom that such increases should always lead to falls in employment.

Another studied the impact of a move by Fidel Castro in 1980 to allow all Cubans who wished to leave the country to do so. Despite high ensuing migration to Miami, Card found no negative wage or labor effects for Miami residents with low levels of education.

"It's about trying to get more scientific tie-in and evidence-based analysis in economics," Card, who initially thought his friends were playing a practical joke when he got the call from Sweden, told Berkeley's website. "Most old-fashioned economists are very theoretical, but these days, a large fraction of economics is really very nuts-and-bolts."

Nobel panelist Eva Mörk said this year's laureates showed "it is still possible to answer these broad questions about cause and effects and the way to do that is to use natural experiments".

Mörk, economics professor at Uppsala University, noted that the pandemic had created scope for a good natural experiment on education outcomes due to the varying disruption caused to children in different school years but whose birth times in some cases were only separated by hours.

The Economic Sciences Prize Committee noted that natural experiments were difficult to interpret, but that Angrist and Imbens had in the mid-1990s solved methodological problems to show that precise conclusions about cause and effect can be drawn from them

"So here, nature has given us an experiment that makes it possible to answer questions that otherwise would not have been possible to answer," she said.

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'Absolutely stunned'

The committee noted that natural experiments were difficult to interpret, but that Angrist and Imbens had in the mid-1990s solved methodological problems to show that precise conclusions about cause and effect can be drawn from them.

"I was just absolutely stunned to get a telephone call, then I was just absolutely thrilled to hear the news," Imbens said on a call with reporters in Stockholm, adding he was thrilled to share the prize with two of his good friends. Angrist was best man at his wedding.

The prize, formally known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, is the last of this year's crop of Nobels and sees the winners share a sum of 10 million Swedish crowns ($1.14 million).

The prestigious prizes for achievements in science, literature and peace were created and funded in the will of Swedish dynamite inventor and wealthy businessman Alfred Nobel.

They have been awarded since 1901, though the economics prize – created through a donation from Sweden's central bank on its 300th anniversary – is a later addition that was first handed out in 1969.

While the economics award has tended to live in the shadow of the often already famous winners of the prizes for peace and literature, laureates over the years include a number of hugely influential economists, such as the Austrian-British Friedrich August von Hayek and American Milton Friedman.