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ECONOMISTS welcomed last week’s Nobel prize announcement as confirming the
rise of their discipline as a real science. The work of James Heckman and Daniel
McFadden—which has been used to assess everything from environmental
clean-ups to job-training programmes—allows economists to measure
accurately the impact of the choices people make in life. “Applications in
economics can get lost, but these two are at the forefront of empirical
testing,” says Oliver Linton of the London School of Economics.

Economics is often criticised for its inability to use standard scientific
techniques such as placebos or control groups. But economists still want to
judge how economic factors change people’s lives.

One of the big problems is that researchers often find it hard to get hold of
an unbiased sample that accurately represents the underlying population. In the
1970s, James Heckman of the University of Chicago suggested new statistical
methods for testing theories in a way that removes this bias. “Before Heckman,
people ignored selection biases completely,” says Michael Kidd at the University
of Aberdeen, “and their equations were biased as a result.”

Daniel McFadden at the University of California shares the £625,000
prize for his theory of choice, which allows economists to design surveys which
people will answer consistently. The theory has been used to assess people’s
preferences regarding major public projects, such as the clean-up after the 1989
Exxon Valdez oil spill in Alaska and the design of the Bay Area Rapid Transit
system, centred on San Francisco.

McFadden told 91av that he and Heckman were in the same
business of putting economics on a sound scientific basis. “I put my odds of
winning the Nobel Prize at 1000 to 1, so I was surprised and very pleased.”
Linton says it is well deserved. “Heckman is plugged into everything at every
level of detail and his and McFadden’s scholarship is astounding.”