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Methods for obtaining results from real-world experiments win 2021 Nobel Prize in economics


Some of the most insightful – and now most famous – studies on social issues as important as minimum wages and immigration have taken hold of natural events. The pioneering efforts of three economists to study the effects of real-world economic events that mimic controlled laboratory investigations won the Nobel Prize in Economics.

David Card of the University of California at Berkeley will receive half of the 10 million Swedish kronor prize (or half of about $ 1.14 million). The other half will be split by Joshua Angrist of MIT and Guido Imbens of Stanford University. The Royal Swedish Academy of Sciences announced the award on October 11.

The research carried out by the Nobel laureates was instrumental in the development during the 1990s of so-called natural experiments. These surveys are based on natural differences between groups or populations that may or may not experience specific conditions. In this way, social scientists can study, for example, how differences in income affect physical health or how immigration influences employment rates.

Natural experiments are particularly important because investigators of key social issues, such as whether pollution slows children’s mental development or whether strong public institutions promote economic growth, often cannot affect people at the same time. chance at processing and control conditions. It would be unethical, impractical, or both.

“Nobel laureates have developed techniques that replicate the idea of ​​truly scientific experiments like the ones you would use to test a vaccine, except [the experiments] happened in the real world, ”says economist Phillip Levine of Wellesley College in Massachusetts. These methods “were at the forefront of a ‘credibility revolution’ in economics” that made the field relevant and understandable to the public, he adds. Levine was a Princeton University graduate student with Angrist, and Card was his thesis supervisor.

Natural experiments in economics are linked to another influential line of research that examines ways to counter the adverse effects of poverty using field experiments, work that won the 2019 Nobel Prize in Economics (ND: 10/14/19).

In a key 1994 article, Card and the late Princeton economist Alan Krueger challenged conventional wisdom in economics that minimum wage increases reduce employment. Card and Krueger surveyed fast food restaurants in New Jersey and a neighboring section of eastern Pennsylvania before and after a minimum wage increase instituted only in the Garden State. Full-time employment edged up in New Jersey following wage increases, while it declined in Pennsylvania where wages remained the same.

David Card
David Card’s pioneering work in developing experiments based on real-world events that partially recreate laboratory conditions has earned him a Nobel Prize in economics.Photo by UC Berkeley

Other research focused on the complexities of how minimum wage interacts with employment rates, but it was clear after Card and Krueger’s report that a simple cause-and-effect relationship did not exist.

Card also conducted a natural experiment indicating that a massive influx of Cuban refugees to Miami in 1980 did not result in reduced wages and employment for Miami residents with low levels of education. This work led Card and others to further explore how the new immigration influences the economic situation of native-born citizens and earlier immigrants.

Angrist and Imbens developed this work by designing steps to determine under what conditions a natural experience, such as being able to leave school at age 16, affects later outcomes, such as annual income. For example, the researchers’ method estimated the effect on subsequent earnings of an additional year of schooling, which they estimate is about 9% lower for each year lost after age 16, but only for people who have chosen to leave school prematurely. The estimate excluded the earnings histories of people who had planned to go to college from the start because these people had never considered leaving school prematurely.

Joshua Angrist (left) and Guido Imbens (right)
Joshua Angrist (left) and Guido Imbens (right) have developed a method to determine under what conditions natural events cause subsequent economic outcomes.Left to Right: Courtesy of MIT’s Department of Economics; Andrew Brodhead

Card, Angrist and Imbens “have promoted a type of scholarly inquiry that is of practical use outside academic journals,” says economist Melissa Kearney of the University of Maryland at College Park, who has studied and worked with Card and Angrist. The research of the Nobel Prize winners has equipped social scientists “with the tools to credibly draw causal conclusions about empirical relationships.”