The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2019 has been awarded to three economists “for their experimental approach to alleviating global poverty”¹: Esther Duflo, Abhijit Banerjee and Michael Kremer.

Michael Kremer showed the efficacy of experiments in economics with his research (alongside other colleagues) in Kenya in the 1990s. These experiments were aimed at increasing the effectiveness of schooling. Kremer received his PhD from Harvard University in 1992 and is the Gates Professor of Developing Societies at Harvard University, Cambridge, USA.

Abhijit Banerjee is the Ford Foundation International Professor of Economics at MIT; he formerly taught at Princeton and Harvard. He earned his PhD from Harvard University in 1988. He has authored a number of books in economics, and is a fellow of the National Academy of Sciences, the American Academy of Arts and Sciences and the Econometric Society². Alongside Esther Duflo, he has conducted research using more experiments – making novel use of randomized controlled trials in economics – in areas such as health, education, and microcredit.

Esther Duflo is something of a rarity in her field, being the youngest ever recipient of the Nobel Prize in Economics (she received her PhD from MIT in 1999), and the second female winner. Eschewing the grand theory model favored by her contemporaries, Duflo has carved out her own academic path, pursuing a rigorous analysis of - in her own words - "the pieces that comprise the whole". Her motivation: a long-held commitment to the alleviation of poverty. She is the Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics at Massachusetts Institute of Technology at MIT.

"Instead of relying on our intuition, or that of others, we set up large-scale, rigorous randomized controlled trials to understand what works, what does not work, and why. We are not alone: this movement has taken hold in economics"

She's not wrong. Randomised Controlled Trials (RCTs), whose popularization the Nobel winners have helped to spearhead, have changed the face of development economics in two very different ways.

The first is practical: they’ve simply become the new norm. As put by the Royal Swedish Academy of Sciences, RCTs now ‘dominate development economics’, and are riding the wave of methodological supremacy. Originally borrowed from medicine, their premise is easily understood. Researchers assess the effect of a ‘development intervention’ by dividing participants into groups, with only some being subjected to said intervention. The outcomes of each group are then measured against each other, and the efficacy of any intervention is thus determined.

Through the Abdul Latif Jameel Poverty Action Lab, which Duflo and Banerjee co-founded (along with Sendhil Mullainathan) in 2003, over a thousand of these experiments have been conducted across the developing world. These have occurred in studies ranging from levels of immunization in India to primary school standards in Kenya.

In RCTs, these researchers saw an apt way of identifying - if present - causal relationships between intervention and outcome, while simultaneously guarding against the chronic problem that blights much development policy - selection bias. Especially in development, but also across economics more broadly, the method has been readily accepted.

The commitment to RCTs is rooted in humility - a sentiment that elsewhere in economics often appears conspicuously absent. Duflo has likened her work to plumbing: "we solve problems with a combination of intuition grounded in science, some guesswork aided by experience and a bunch of pure trial and error".

Their approach also helps address something economics has long failed to do: it humanises the poor. Again, it’s Duflo's words that capture this best: "we have to abandon the habit of reducing the poor to cartoon characters and take the time to really understand their lives, in all their complexity and richness." Awareness of this kind not only imbues their research with nuance and thus precision, it gives it morality too - an appreciation and respect of the human subjects at the center of their work.

Sources

1: https://www.nobelprize.org/uploads/2019/10/press-economicsciences2019-2.pdf

2: https://economics.mit.edu/people/faculty/abhijit-banerjee/short-bio