No, there is no such thing as a Nobel Prize for economics. There’s no such award, Alfred Nobel didn’t care much for economics, and there’s no mention of it in his will. Instead, there is something called “The Sveriges Riksbank (Bank of Sweden) Prize in memory of Alfred Nobel.”

This year, the recipients of the “Bank of Sweden Prize” are Dr. Oliver Hart of Harvard University and Dr. Bengt Holmstrom of MIT for their riveting contributions towards contract theory. To summarize, they explored whether or not a company or government should take ownership or contract a service. They found that there exists a tradeoff between control and cost-savings.

While Dr. Hart and Dr. Holmstrom’s ideas are indeed brilliant and influential, it would be wrong to assume that they had “won the Nobel Prize.” In fact, none of the 48 recipients had ever received an actual Nobel Prize – not Paul Krugman, not Friedrich Hayek. Rather, they are recipients of a spinoff, one which the founder of the Nobel Prize – Alfred Nobel – would likely disapprove of.

An Explosive History

Today, we recognize Alfred Nobel as the founder of the prize and for his initiatives in the sciences and towards global piece. But in reality, it was his contributions to warfare – specifically, his invention of dynamite -- that gave rise to Nobel’s fortune. During the Swedish businessman’s lifetime, he was repeatedly criticized for his invention, one French newspaper in 1888 called Nobel “the merchant of death” (Le marchand de la mort).

Needless to say, the merchant of death was not fond of his title, and over the following eight years, he grew disconcerted with his own legacy. Nobel wanted to be known for contributing to science and world peace. Subsequently, Nobel penciled in his will what is known today as the Nobel Prize and decided to donate his entire fortune (of about $260 million) to recipients of the prize. Nobel passed away in 1896.

For Nobel, the five subjects that contributed most to “the greatest benefit of mankind” were physics, chemistry, medicine, literature, and peace. Not economics.

Seven decades after Nobel’s death, the first “Nobel Prize” in economics was awarded. But it did not commemorate Alfred Nobel. Instead, it commemorated the Bank of Sweden, who had donated a vast sum to the Royal Academy. At the time, the bank wanted more independence from the government, and by framing economics as a scientific discipline rather than a political tool, they hoped to scare politicians away.

"Ig-Nobel" Criticisms

It is clear that the existence of the Nobel Prize in economics has its roots not in finding ways to better the state of mankind, but in a political motive. This has therefore garnered vast criticism for the award. Both recipients of the Nobel Prize in economics and existing members of the Nobel family have rallied against the award.

Peter Nobel – descendant of Alfred Nobel – denies the idea that the prize serves his family’s legacy and doubts that it symbolizes improvements to the human condition: “[the economics prize] is most often awarded to stock market speculators.” The father of Austrian Economics – Freidrich Hayek – also denounced the Nobel Prize in economics at his own banquet speech in 1974. For Hayek, the prize serves only to give disproportionate power to a select few: “I am not sure that it is desirable to strengthen the influence of a few individual economists by such a ceremonial and eye-catching recognition of achievements.”

Other large questions remain: How does the Royal Academy define “economics” and “economic contributions” within the context of the prize? and how can their choices be made without arbitrariness and subjectivity?

In response, the Royal Swedish Academy of Sciences adopted a broad definition, recognizing that economics encompasses several disciplines. Economists tend to be well versed in philosophy, political science, mathematics, finance, and so forth and make contributions to those fields. In fact, several non-economists such as John Nash (mathematician), Daniel Kahneman (psychologist), Fredreich Hayek (lawyer and political scientist) were recipients of the prize.

Given that economists and social scientists alike stick their noses at each other, perhaps it would make sense to broaden the award category to “human sciences.” However, such changes would create opposition and diminish the credibility of the Royal Swedish Academy.

Then there’s the issue of objectivity. In reality, almost all economic research has a slight political tilt – that is simply the nature of the dismal science. To that end, the selection committee, which is also prone to the same biases, may select a laureate with a degree of arbitrariness, and if his ideas are mainstream.

The Royal Swedish Academy of Sciences is well aware of these shortcomings, and it has attempted to establish a robust means of selection. Yet this does not change the fact that economics is a field prone to many errors and human errors (economic ideas are not as robust as, say, the anatomy of the mouth or gravity). An award this prestigious must only be given exclusively to those who have made an observable and positive difference in their field and to mankind.

But if nothing changes, the least recipients can do is to abide by Hayek’s proposition: “I am ... inclined to suggest that you require from your laureates an oath of humility, a sort of hippocratic oath, never to exceed in public pronouncements the limits of their competence.”