2 American professors win economics award

Their research explored decision-making behavior


In the second round of prizes to be awarded yesterday, two Americans won the Nobel Memorial Prize in Economic Sciences for trying to explain idiosyncrasies in how people make decisions - research that is at the nexus of psychology and economics.

Daniel Kahneman, a professor of psychology at Princeton University, who is also a citizen of Israel, and Vernon L. Smith, a professor of economics and law at George Mason University in Virginia, shared the $1 million prize.

The standard theory of choice propounded by economists assumes that individuals make decisions systematically, based on their preferences and available information, in a way that changes little with time or context. Yet by the early 1980s, Kahneman and his longtime collaborator, Amos Tversky, who died in 1996, had begun to perform experiments with human subjects to suggest seemingly irrational wrinkles in behavior.

In an article published in Science in 1981, they reported the results of a study in which 152 students were given hypothetical choices for trying to save 600 people from a disease. Using one strategy, exactly 200 people could be saved for certain. Using another, there would be a one-third chance that everyone would live, and a two-thirds chance that no one would be saved. Seventy-two percent of the subjects, preferring the less risky strategy, chose the first option.

But when the researchers presented the same choice with different wording - either 400 people would die for sure or there would be a one-third chance that no one would die - only 22 percent chose the first option.

Smith's work formalized laboratory techniques for studying economic decision-making, with a focus on bargaining and auctions. The Nobel committee cited him for demonstrating how market institutions, such as the type of auction used in a sale, could affect participants' behavior.

The prize committee noted Tversky in its statement, but Nobel prizes are not awarded posthumously.

Unlike the other five Nobel prizes, the prize in economics was not set up by the will of Alfred Nobel, the Swedish inventor of dynamite who died in 1896.

It has been awarded by the Royal Swedish Academy of Sciences with sponsorship from Sweden's central bank since 1968.

The six Nobel prizes will be presented to the winners Dec. 10, the anniversary of Nobel's death.

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