Theory as demonstrated by reality
The 2021 Nobel Prize awarded by the Sveriges Riksbank recognises the value of focusing on what is really going on, including in the economy
Observing reality in order to demonstrate the theory that explains it. Even when the complexity of the problems being addressed appears almost insurmountable and impossible to solve. In any case, there’s no laboratory to be seen. Which, on the other hand – when you look at what happens in companies, of whatever type – would always be a limiting factor. Even though it would be simpler. Hence the importance of the achievement of David Card (University of California, Berkeley), Joshua D. Angrist (Massachusetts Institute of Technology) and Guido W. Imbens (Stanford University), who were awarded the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel” for the year 2021. A major recognition, and one that is particularly beneficial for that area of economics which seeks to understand reality through what are referred to as “natural experiments” – or in other words, those studies carried out via observation, in which the control and the variables of interest are not artificially manipulated by the researchers, but rather can be influenced by nature, or by other factors beyond the control of the researchers. In simple terms, it is an attempt to bring reality and its changes and transformations closer to theory. This, in fact, is what often happens in companies, and more generally in human organisations.
As such, it is perhaps no coincidence that the theme of labour was among those most closely studied by the three winners of this year’s Nobel Prize in economics. This is immediately apparent from stated reasons for which the award was given. Card received his prize “for his empirical contributions to labour economics”, while Angrist and Imbens were recognised “for their methodological contributions to the analysis of cause and effect relationships”. The work of the three was complementary, and used the “natural experiment” methods: the empirical contribution came from the first of these three economists, while the other two dedicated their efforts to the methodological element. More specifically, David Card studied the effects of the minimum wage, immigration and education on the labour market, and concluded that when the first increases, there is no decrease in employment; furthermore, investing in schooling contributes to the future success of students within the world of work. Joshua Angrist and Guido Imbens, meanwhile, provided the tool necessary in order to read the experiments carried out by Card, demonstrating the ways in which it is possible to draw precise conclusions regarding the cause and effect of a phenomenon from natural experiments, or to put it another way, from the careful observation of reality in accordance with a refined method that leaves people the freedom “to choose”.
A series of complex yet fascinating themes, then, which led these three economists to achieving such an important recognition, many of which can be explored through a number of the books they have written. In 2016, Card wrote Wages, School Quality, and Employment Demand, and back in 1995, he co-authored the book Myth and Measurement: The New Economics of the Minimum Wage. Meanwhile, in 2014, Angrist published Mastering ‘Metrics: The Path from Cause to Effect , the precursor of which was Mostly Harmless Econometrics: An Empiricist’s Companion., back in 2009. Finally, Guido W. Imbens published Causal Inference for Statistics, Social, and Biomedical Sciences: An Introduction, in which “natural experiments” are discussed and compared with other means of explaining reality.
Wages, School Quality, and Employment Demand
David Card
Oxford University Press, 2016
Myth and Measurement: The New Economics of the Minimum Wage
David Card, Alan B. Krueger
Princeton University Press, 2015 (revised edition)
Mastering Metrics: The Path from Cause to Effect
Joshua D. Angrist, Jorn-steffen Pischke
Princeton University Press, 2014
Mostly Harmless Econometrics: An Empiricist’s Companion
Joahua D. Angrist, Jorn-steffen Pischke
Princeton University Press, 2009
Causal Inference for Statistics, Social, and Biomedical Sciences: An Introduction
Guido W. Imbens, Donald B. Rubin
Cambridge University Press, 2015
The 2021 Nobel Prize awarded by the Sveriges Riksbank recognises the value of focusing on what is really going on, including in the economy
Observing reality in order to demonstrate the theory that explains it. Even when the complexity of the problems being addressed appears almost insurmountable and impossible to solve. In any case, there’s no laboratory to be seen. Which, on the other hand – when you look at what happens in companies, of whatever type – would always be a limiting factor. Even though it would be simpler. Hence the importance of the achievement of David Card (University of California, Berkeley), Joshua D. Angrist (Massachusetts Institute of Technology) and Guido W. Imbens (Stanford University), who were awarded the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel” for the year 2021. A major recognition, and one that is particularly beneficial for that area of economics which seeks to understand reality through what are referred to as “natural experiments” – or in other words, those studies carried out via observation, in which the control and the variables of interest are not artificially manipulated by the researchers, but rather can be influenced by nature, or by other factors beyond the control of the researchers. In simple terms, it is an attempt to bring reality and its changes and transformations closer to theory. This, in fact, is what often happens in companies, and more generally in human organisations.
As such, it is perhaps no coincidence that the theme of labour was among those most closely studied by the three winners of this year’s Nobel Prize in economics. This is immediately apparent from stated reasons for which the award was given. Card received his prize “for his empirical contributions to labour economics”, while Angrist and Imbens were recognised “for their methodological contributions to the analysis of cause and effect relationships”. The work of the three was complementary, and used the “natural experiment” methods: the empirical contribution came from the first of these three economists, while the other two dedicated their efforts to the methodological element. More specifically, David Card studied the effects of the minimum wage, immigration and education on the labour market, and concluded that when the first increases, there is no decrease in employment; furthermore, investing in schooling contributes to the future success of students within the world of work. Joshua Angrist and Guido Imbens, meanwhile, provided the tool necessary in order to read the experiments carried out by Card, demonstrating the ways in which it is possible to draw precise conclusions regarding the cause and effect of a phenomenon from natural experiments, or to put it another way, from the careful observation of reality in accordance with a refined method that leaves people the freedom “to choose”.
A series of complex yet fascinating themes, then, which led these three economists to achieving such an important recognition, many of which can be explored through a number of the books they have written. In 2016, Card wrote Wages, School Quality, and Employment Demand, and back in 1995, he co-authored the book Myth and Measurement: The New Economics of the Minimum Wage. Meanwhile, in 2014, Angrist published Mastering ‘Metrics: The Path from Cause to Effect , the precursor of which was Mostly Harmless Econometrics: An Empiricist’s Companion., back in 2009. Finally, Guido W. Imbens published Causal Inference for Statistics, Social, and Biomedical Sciences: An Introduction, in which “natural experiments” are discussed and compared with other means of explaining reality.
Wages, School Quality, and Employment Demand
David Card
Oxford University Press, 2016
Myth and Measurement: The New Economics of the Minimum Wage
David Card, Alan B. Krueger
Princeton University Press, 2015 (revised edition)
Mastering Metrics: The Path from Cause to Effect
Joshua D. Angrist, Jorn-steffen Pischke
Princeton University Press, 2014
Mostly Harmless Econometrics: An Empiricist’s Companion
Joahua D. Angrist, Jorn-steffen Pischke
Princeton University Press, 2009
Causal Inference for Statistics, Social, and Biomedical Sciences: An Introduction
Guido W. Imbens, Donald B. Rubin
Cambridge University Press, 2015
