Prize In Economics Research Articles

Game Theory: An approach through history and its applications

Game Theory is a mathematical approach to the study of decision making between individuals when each outcome depends on the decisions of others, ie, one should not make an arbitrary decision, but decide based on what they think the decision of their "opponent" will be, knowing that they think the same. Developed by John von Neumann and Oskar Morgenstern in 1944 in the book Theory of Games and Economic Behavior, it had been very contested since its launch, but the works of a genius named John Nash, winner of the Nobel Prize in economics in 1994, ended these contestations. This work shows that the Game Theory was not limited to the field of economics, but expanded to other areas, such as biology, explaining strategies used by species to survive. As results are presented more than ten models based on the principles of Game Theory, among them the Prisoner's Dilemma, Ice Cream Vendors Game, Clean City Law and Warning Song between Bird.

Douglass North’s Theory of Politics

ABSTRACTDouglass C. North, co-winner of the Nobel Memorial Prize in Economics in 1993, became a major leader in historical and comparative political science and in the study of institutions more generally. His work proved particularly relevant for those interested in questions of state building, state variation, development, and long-term secular change.

Introduction to Ostrom's Tensions: Examining the Political Economy and Public Policy of Elinor C. Ostrom (book)

Elinor Ostrom (1933–2012) influenced fields ranging from institutional analysis to metropolitan service delivery, from federalism and theories of polycentric orders to common-pool resource management and sustainable development. Her seminal book, Governing the Commons: The Evolution of Institutions for Collective Action (1990), put forward new approaches to institutional economics that would shape scholarship across multiple fields. In 2009, Ostrom was named co-recipient of the Nobel Prize in Economics, along with Oliver E. Williamson, with particular recognition for her path-breaking work on institutions organized to address common-pool resource settings. This new collection of essays illuminates important aspects of Ostrom's contributions and how they shape our understanding of institutions, constitutions, and the prospects for self-governance and also identify critical tensions that remain to be studied. The theoretical tensions considered range from issues of the cohesiveness of the research program to its comparison with well-accepted theoretical approaches to the evaluation of those specific, unresolved theoretical puzzles posed by the underlying assumptions in the Ostroms’ scholarship. Together, they offer a sample of today’s wide range of interpretive and critical engagement with the Ostroms’ intellectual legacy. This chapter provides an introduction to the volume and an overview of Ostrom's important work.

A Review of Prospect Theory

Behavioral decision derived from the paradox of the expected utility theory. With the introduction of cognitive psychology, it opened up a road for the field of behavioral decision. Now countless scholars are wandering in behavioral decision related with prospect theory, it is worth mentioning the prospect theory proposes Daniel Kahneman won the Nobel Prize in economics in 2002. It should be the recognition for his important contribution to the academic. This paper is a review of prospect theory.

Inside co‐production: Ruling, resistance, and practice

It might be argued that a narrative of co-production has come to re-define contemporary social and public policy. Elinor Ostrom’s pioneering work on co-production, that started in the 1970s and was awards the Nobel prize for economics in 2009, offers a way to bridge the gap between the market and the state through involving citizens in the production of common goods (Ostrom et al. 1978; Ostrom 2015). This ‘disarmingly simple’ idea (Alford 2014) is now engrained within contemporary policy-making and public service delivery (Ansell and Gash 2008), symbolising a more humane and inclusive alternative to New Pubic Management (Newman 2005) and cornerstone to New Public Governance (Osborne et al. 2016).

Selected applications of differential equations in Vanilla Options valuation.

In financial models one of the basic assumptions about investors is that they want to gain as much as it is possible but they have aversion taking the risk. Each investing strategy can be considered as a compromise between willing of profit and fear of losses - usually possible profit increase with the probability of loss. An option can be considered as some kind of insurance - a more prudent speculator might want to reduce the maximal loss by a quantity K>0 . He thus will buy an option which would correspond to the strike price K . For him (option holder) it is the way to protect himself against the risk, for option issuer, it is the possibility to profit by selling this financial product. The fundamental question is what is the value of this security? The answer has essential meaning in the financial world and the global economy. The first record of an option contract can be found in the Politics of Aristotle. According to the story, the Greek philosopher Thales profited by option-type agreement around the 6th century B.C. The problem of fair valuing this kind of financial instrument was not formalized until 1900. At this year L.Bachelier by his pioneering thesis began the theory of option pricing. In the same work he initiated the study of diffusion processes five years before recognized as the groundbreaking works of A.Einstein, M.Smoluchowski and decades before famous works of K.Ito, P. Levy and N.Wiener. Bachelier as the first developed the theory of Brownian motion and found practical application of this concept in financial engineering. The culminating event in developing theory of option pricing was 1973 when Black, Scholes and Merton found consistent formulas for the fair prices of European options. The discovery was of such great importance that the autors were awarded the Nobel Prize for Economics in 1997. Very interesting is fact that for short time to maturity formulas of Bachelier are very close to results of Black, Merton and Scholes. Until today, there is no knowledge of any analytical formula of American option fair price, which could have any practical application. In order to determine this value, as a rule it is given main importance to Monte Carlo methods. Usually they are easier to implement, but require more time or are related to higher numerical errors than deterministic methods.

2018 Nobel Economics Prize: Integrating Climate Change Measures into Sustainable Economic Growth

The 2018 Nobel Economics Prize was awarded to two American economists - William D. Nordhaus and Paul M. Romer - who designed methods for better assessing environmental issues and technological advances on growth. This year’s Laureates, Nordhaus was the first person to create an intergrated model to assess interactions between society and nature and Romer laid the foundation for what is now called endogenous growth theory. According to the Swedish Royal Academy of Sciences, these two macroeconomists’ research have helped “significantly broaden the scope of economic analysis by constructing models that explain how the market economy interacts with nature and knowledge” which integrates climate change measures into long-term sustainable economic growth.
 Keywords
 Nobel in economics, William D. Nordhaus, Paul M. Romer, climate change, endogenous growth theory, economic growth
 References
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Theoretical framework of optimal contracts (Nobel Prize in Economics 2016 awarded to Oliver Hart and Bengt Holmström)

The article considers Oliver Hart and Bengt Holmström’s contributions to the development of contract theory. The contributions are represented by studies on the nature of optimal contract in view of motivation of contract agents and factors that affect their motivation. A particular attention is placed on the practical utility of the research done by Nobel Laureates in Economic Sciences 2016 that have fostered further studies on the theory of the firm, corporate finance, management, labour economics and the public sector, political science and law. The new theoretical tools created by O. Hart and B. Holmström serve for analysis of financial terms of contracts and for the distribution of supervisiory rights, property rights and decision-making rights. It is emphasized that O. Hart and B. Holmström’s contributions to the field of contract theory present formal treatment of motivation issues, moral hazard and incomplete contracts. The role of contracts in managing future interactions and ensuring conditions for establishing high-quality institutions is recognized. It is pointed out that the contract theory reveals working mechanisms of institutions, and presents potential hazard that may arise when new contracts are being drafted. Particular attention is paid to positioning of the contract theory within the theory of economic organization and the economic theory of information that is aimed at developing models with asymmetric information and taking into account non-observable actions. Real situations, game models and contract structure with the distinction between complete and incomplete contracts are examined (based on the informativeness principle). The performance of multi-task model and career-growth model in the contract theory is outlined. The paper analyzes the impact of the contract theory on changes in approaches to analyzing corporate relationships, which were previously based on the trade-off theory that includes balancing between the reduction of tax payments and corporate debt servicing.

The research of eco-compensation for basin water resources based on new regulatory economics

The economist J Tirole has obtained the Nobel Prize for Economics by the theory of new regulation economics, which provides a new way for the regulation of various fields. Based on this theory, the new regulation of water resources eco-compensation in watershed is analyzed. In view of the information asymmetry between compensation subject and compensation object, a new method of determining compensation standard is put forward by using the new regulation model. Taking the eco-compensation of the water source area of Shitou River as an example, the application mode of the new regulation is explored. Firstly, information rents can be eliminated. Secondly, the dynamic and accuracy of the compensation standard can be improved, and government budgets will be more accurate according to the interval range of compensation funds. Thirdly, the overall welfare level of the society can be guaranteed.

Calls for change. The scientific status of economic theory and the future of democracy: A review of three recent contributions

After the last financial crisis, economic theory and economists have largely lost their credibility. Not having been able to foresee and explain the recession, they have clearly shown that a deep methodological reform of the discipline is necessary. With its restrictive assumptions and the self-referentiality of formal models, mainstream economics has indeed become highly unrealistic and therefore unable to face the deep and evident problems of capitalistic society. The books reviewed in this paper try to criticize economic theory from three closely related points of view: the technical drift that has endangered democracy and annulled the role of citizens in public choices, the sometimes obscure role of economists and the way through which articles of low scientific relevance are published, and finally the decisive role of the Nobel Prize in economics to legitimize the market turn begun in the 1970s. Considering such a discouraging picture, it is necessary to ask whether there is still hope for reforming economics and if, possibly returning to the classics of economic thought, it is still possible to carry out a struggle based on ideas and not on dogmatic prejudices.

Los aportes de Lucas a la economía

Entre los economistas que contribuyeron decididamente a la construcción de la Nueva Macroeconomía Clásica (NMC) destaca el profesor Robert E. Lucas Jr., Premio Nobel de Economía 1995, "verdadera piedra angular de la escuela, con contribuciones que han servido de referencia en prácticamente todas las ramas esenciales de la NMC y especialmente en aquéllas que han centrado el núcleo del debate en torno a esta escuela: la proposición de inefectividad y su contrastación empírica, la macroeconometría y la evaluación de las medidas de política económica, y los modelos explicativos del ciclo de los negocios".

Schelling’s Theory of Contracts and Rules: Applications for Procedure Design and Safety Analysis

Rules enforced on front-line operators are not only unique to aviation and other high-risk industries; in fact, the topic of rules is just as important in business, the economics of the Market, and public policy. The problem of how to design rules and procedures, with a keen eye toward compliance, has a long tradition in contractual relations. This tradition has produced a rich set of tactics to improve, by anticipatory design, contract and rule compliance. Along the same lines, rules that people devise for self-governance – such as those for prevention and performance – also contain many innovative tactics to improve compliance. The discussion is based on the work of the late Thomas Schelling (1921-2017) who was awarded the 2005 Nobel Prize in Economics for "having enhanced our understanding of conflict and cooperation through game-theory analysis." His work on the topic of conflict, contracts, and rules is the basis for the framework proposed here. We also extend his work to procedure design, safety analysis, and discuss some implications of framework via one aviation example (stabilized approach procedure).

Bringing Together Economics and Psychology: Theoretical and Practical Aspects (Nobel Prize in Economics 2017)

Behavioral economics is a field of research, where the analytical possibilities of psychology science are applied to the analysis of economic decision-making. This approach allows more in-depth analysis of the decision-making process of economic agents and opens up new opportunities for research aimed at increasing overall social benefits.This article examines the studies of Richard Thaler, noted by the Nobel Prize in Economics in 2017, devoted to the study of three psychological features of economic man which systematically affect the behavior of economic agents: limited rationality, the perception of justice (social preferences), and the problem of selfcontrol.Using the system approach, the author sets a goal to carry out a complex analysis of the theoretical, methodological and practical works of the Nobel Prize Laureate, that have received world recognition. The attention is also focused on the awarded Nobel Prize in connection with the peculiarities of the Nobel Committee’s policy of awarding that has been formed over the past few years, within the framework of the development of the world economic science.The article systematizes Thaler’s scientific contribution to economics. In addition, it concludes that awarding of the Nobel Prize in 2017 fits into the overall picture of awards in the last few years. At the same time, it notes one of the main directions of the Nobel Committee’s activities related to the “definition” of such research results and programs that could rehabilitate economic science after the past economic crisis and prevent further increase in the uncertainty of the world economic system.

The Precarious State of Famine Research

In 2017 famine struck yet again. While famine continues to haunt many fragile countries, the paper reveals a faltering scholarly interest in famine research, particularly within the research tradition of development studies. Today, the research field is rather dominated by the research traditions of history and economics. Interestingly, the steepest decline in scholarly attention to famine coincided with Amartya Sen being awarded the Nobel Prize in Economics in 1998 in part for his work on famine. The paper points to three characteristics of famine research that might account for this rather puzzling development: (i) the field of contemporary famine research exhibits limited interest in theory-building; (ii) the field is impeded by inaccessibility to key research sites; and (iii) the field is weakened by a small and dispersed research community. The paper suggests remedies that might address these obstacles to contemporary famine research in development studies. To facilitate more theoretical development, scholars could engage with the recent call for a criminalisation of famine, and the broader field of disaster research could be used as an institutional catalyst for scholars of famine.

Avner Offer and Gabriel Söderberg. The Nobel Factor: The Prize in Economics, Social Democracy, and the Market Turn.

Avner Offer and Gabriel Söderberg. The Nobel Factor: The Prize in Economics, Social Democracy, and the Market Turn.

ECO-ETHICAL VIEWS OF TAGORE AND AMARTYA SEN

Desde que se otorgó el Premio Nobel de Economía a Amartya Sen, se han hecho muchos esfuerzos por destacar el pasado de Sen Shantiniketan y la afinidad de su visión mundial con la de Rabindranath Tagore. Desafortunadamente, es probable que un análisis más profundo revele que los puntos de vista de Amartya Sen -basados en el mundo occidental- sean diametralmente opuestos a los de Tagore -basado en la antigua perspectiva india mundial-, particularmente en lo que respecta al desarrollo sostenible y la vida ética humana. Este artículo se esfuerza por resaltar los aspectos contrastantes de las visiones del mundo de dos galardonados con el Premio Nobel de Bengala.AbstractEver since the Nobel Prize in Economics was awarded to Amartya Sen, there has been much endeavour to highlight Sen’s Shantiniketan background and affinity of his world outlook with that of Rabindranath Tagore. Unfortunately, a deeper analysis is likely to reveal that Amartya Sen’s views (based on western world-outlook) are diametrically opposed to that of Tagore (based on ancient Indian world-outlook), particularly as regards sustainable development and eco-ethical human living. This article endeavours to highlight these contrasting aspects of the world-outlooks of two Bengali Nobel Laureates.

Toward Real Man. The Long Way of Economic Theory (about Nobel Prize in Economics 2017)

Subject. The direction in the field of behavioral economics, so-called nudge theory is described. Chicago professor Richard Thaler had been awarded Nobel prize in economics 2017 for it. This award remarks the importance of new aspects of behavioral economics investigation, which weak in Russia. Targets. Author (every year till 2001) introduces main ideas of Nobel laureates on economics for Russian economists. He believed that this activity gives a possibility to compare economic research in Russia with world ones according to its themes and depth. Methodology. Methods used to boil down to texts analytics and different times economic ideas comparison. The article provides real examples of nudge theory practical applications in different spheres of economic life as well. Results. The author proves that nudge theory is natural development of restricted rationality conception, experimental and non-price economics, that it improved previous economists’ (who were Nobel prize awarded also) conceptions to practical applications. Moreover, behavioral economics development importance is detected, This subject was absent in Soviet economic science and is weakly developed in the modern Russian one. Nudge theory place is determined, in connection with justice conception, which is intimately linked with practical measures for labor market improvement and so on in R. Thaler works. Conclusions. The author concludes, that a consciousness manipulation, as a part of nudge theory, is very dangerous. Level of danger depends largely on who is a manipulator. Discussion. Nudge theory application should be accompanied by many public control measures in Russia.

Inconsistency in intertemporal choice: a behavioral approach

Purpose The purpose of this paper is to introduce the main measures of inconsistency in the context of intertemporal choice and to identify the relationships between them (more specifically, the measures by Prelec, Takahashi and Rohde). In effect, Thaler (1981), awarded the Nobel Prize in Economics 2017, argued that when a preference must be expressed between two reward options, some people may reverse their original preference when a significant delay is introduced before the reward is to be received. This anomaly is known as inconsistency in intertemporal choice. Design/methodology/approach After a revision of the existing literature and by using the methods from mathematical calculus, the authors have derived the logical relationships between the measures presented in this paper. Findings The main contribution of this paper is the proposal of a novel parameter, the so-defined ratio of two instantaneous discount rates, which the authors call the instantaneous variation rate, which allows relating some other measures of inconsistency, namely the measures described by Prelec and Rohde. A limitation of this paper is the unavailability of empirical information about the inconsistency measures needed to substantiate the theoretical findings. Indeed, this paper has social implications because recent behavioral and neuroeconomic studies have shown the existence of preference reversal or time inconsistency in other areas. The authors’ models can be implemented in these fields in order to better analyze the situations of inconsistency. Originality/value The originality of this paper lies in the authors’ aim to bring some order to the proposed measures of inconsistency which have arisen as a result of the different approaches adopted.

How Behavioral Economics can enrich the Perspective of the Austrian School

Economists early felt that something was not quite right with equi- librium economics and its corresponding «feature», the rational homo oeconomicus. Critique came from the Austrian school (see for instance: Huerta de Soto (1998), Kirzner (1997), Mises (1940, 1957), Rothbard (1962, 1997), yet from other sides, as well.
 Complexity economics (Arthur 1999) was built on physics — just like León Walras’ equilibrium approach (Walras 1874). But it added interdisciplinary findings from biology, psychology and computer science. It views the economy not as a deterministic, predictable and stable system, but as an evolving process (see Arthur (1999, 1995, 2013) and Beinhocker (2006) for a review of the paradigm).
 Furthermore, behavioral economics (Kahnemann and Tversky 1979 and Kahnemann 2011), showed that real human behavior often times falls prey to systematic errors, so called biases, and that the mind may take mental shortcuts (heuristics) when weigh- ing decisions. Behavioral Economics (BE), thus attacked the model of homo oeconomicus from another angle and eventually, Kahnemann received the Nobel Prize in economics for his achievements in 2002.
 This rising critique against the mainstream model could have been applauded by Austrian scholars, for it finally seemed to shake the walls of the neoclassical dominance. Yet, contrary to the Austrian perspective, the new model of human beings was not an entrepreneur, but an often erring homo heuristicus that even needed paternalistic policies for his guidance. At least this is the culminating conclusion implied by the book «Nudge» in which Thaler and Sunstein (2009) even argued for a libertarian paternalism.
 The behavioral school of economics and especially their impli- cations for public policy were instantly criticized by Austrians — see for example (Shostak 2002), but the aim of this paper is to show how adding psychology can, in fact, enrich the Austrian paradigm and that the critique against BE from the Austrian side should be evaluated with a closer look. For instance, findings of the most prominent opponent of Kahnemann, the German psychologist Gerd Gigerenzer (Gigerenzer 1996), suggest that men indeed act rational and that they do so using the mind to gather and evaluate many chunks of information simultaneously in a bottom-up way. Thus, «Fast-and-frugal» rules of thumbs beat top-down algorithms in that model and resemble the mechanisms of free market dynamic.

Nobel Prize Laureate in Economics 2017

Richard H. Thaler was awarded the 2017 Nobel Prize for Economics for the Development of Behavioural Economics. His studies of psychological assumptions of economic decision-making processes and his contribution to the interconnection of economics and psychology were identified as pioneering.