Saturday, January 28, 2017

Testing economic statements


The purpose of positive economics is to make accurate statements about economic phenomena. I also believe this is the purpose of any science. Scientists attempt to make accurate statements about their object of study. The hard part is determining what statements are true.

I also believe that all of mathematical economics falls under the umbrella of economic statements. Equations and models make statements about economic variables. Geometrical pictures make statements about economic variables also.

So basically I think theoretical economics goes like this:

1. Make an economic statement (hypothesis)
2. Determine the validity of the economic statement

In my opinion, testing economic statements (step 2) is the most important part of economics. Building a DSGE model is cool, but it's only a statement. I believe it's more important to find evidence that supports or disputes an economic statement in order to determine its accuracy. That's why I'm a big fan of econometrics and the empirical revolution in economics. I'm inspired by innovative methods that determine the validity of economic statements.

I believe one of the most common mistakes in modern economics is too much time spent building complex formal economic statements and not enough emphasis testing the validity of those statements. I believe economic statements do not need to be complex in order to be testable.

Sunday, January 22, 2017

Philosophy of economics: Nobel Prize recipient quotes


This post is a list of quotes from Nobel Prize economists about the philosophy of economics. I made this list because I was interested to see what the experts said about this topic. Philosophy of economics involves questions such as: What is economics? Why do we study economics? What is an economic theory? Do economic theories accurately describe reality?


1969: Ragnar Frisch
"I believe that economic theory has arrived at a point in it's development where the appeal to quantitative empirical data has become more necessary than ever. At the same point its analyses have reach a degree of complexity that require the application of a more refined scientific method than that employed by the classical economists." (1926, Ragnar Frisch 1895-1995)

1969: Jan Tinbergen
"First of all I wan to remind you of the essential features of models. In my opinion they are: (i) drawing up a list of the variables to be considered, (ii) drawing up a list of the equations or relations the variables have to obey, (iii) testing the validity of the equations, which implies the estimation of their coefficients, if any. As a consequence of especially (iii) we may have to revise (i) and (ii) so as to arrive at a satisfactory degree of realism of the theory embodied in the model. Then, the model may be used for various purposes, that is, for the solution of various problems. The advantages of  models are, on one hand, that they force us to present a 'complete theory' by which I mean a theory taking into account all the relevant phenomena and relations and on the other hand, confrontation with observation with observation that is, reality. Of course these remarks are far from new." (1969, Lecture in memory of Alfred Nobel)

1970: Paul Samuelson
"My notion of a fruitful economic science would be that it can help us explain and understand the course of actual economic history. A scholar who seriously addresses commentary of the contemporary monthly and yearly events is in this view, practicing the study of history, history in its most contemporary time phasing." (2003, An interview with Paul Samuelson)

1971: Simon Kuznets
"We need far more empirical study than we have had so far of the universe of inventors; any finding concerning inventors... would be of great value... for public policy in regard to inventive activity." (1962, Understanding the Creativity of Scientists and Entrepreneurs)

1972: Kenneth Arrow
"I then follow up with four major aspects of economic research in the last 60 years, the period of my scholarly activity. One, econometric methodology and practice, is of such fundamental importance that it cannot go unnoticed, although I played no role in it. With the other three, general equilibrium, dynamic processes, and uncertainty and information, I was more intimately involved." (2009, Some Developments in Economic Theory since 1940: An Eyewitness Account)

1972: John Hicks
"There is much of economic theory which is pursued for no better reason than its intellectual attraction; it is a good game. We have no reason to be ashamed of that, since the same would hold for many branches of pure mathematics." (1979, Imagining Economics Otherwise)

1973: Wassily Leotief
"Much of current academic teaching and research has been criticized for its lack of relevance, that is, of immediate practical impact... The trouble is caused, however, not by an inadequate selection of targets, but rather by our inability to hit squarely any one of them... The weak and all too slowly growing empirical foundations clearly cannot support the proliferating superstructure of pure, or should I say, speculative economic theory." (1971, Theoretical assumptions and nonobserved facts)

1974: Friedrich Hayek
"I have arrived at the conviction that the neglect by economists to discuss seriously what is really the crucial problem of our time is due to a certain timidity about soiling their hands by going from purely scientific questions into value questions. This is a belief deliberately maintained by the other side because if they admitted that the issue is not a scientific question, they would have to admit that their science is antiquated and that, in academic circles, it occupies the position of astrology and not one that has any justification for serious consideration in scientific discussion." (1978, Conversation at the American Enterprise Institute)

1974: Gunnar Myrdal
"The further away a scholarly opinion is from direct observation and the more abstract and ‘theoretical’ it is, the more defenseless it becomes against insidious opportunist errors of judgment. In economics, model thinking in particular creates scope for systematic biases... But of course all social studies must nevertheless aim at generalization. It is thus important to be able to think concretely at the same time, as I learnt from Gustav Cassel." (1982, Rrole of the economist in public debate)

1975: Tjalling Koopmans
"We look upon economic theory as a sequence of conceptual models that seek to express in simplified form different aspects of an always more complicated reality." (1957, Three Essays on the Stat of Economic Science)

1975: Leonid Kantorovich
"In our time mathematics has penetrated into economics so solidly, widely and variously and the chosen theme is connected with such a variety of facts and problems that it brings us to cite the words of Kozma Prutkrov which are very popular in our country: 'one can not embrace the unembraceable.'" (1975, Lecture in memory of Alfred Nobel)

1976: Milton Freidman
"If we are to use effectively these abstract models and this descriptive material, we must have a comparable exploration of the criteria for determining what abstract model it is best to use for particular kinds of problems, what entities in the abstract model are to be identified with what observable entities, and what features of the problem or of the circumstances have the greatest effect on the accuracy of the predictions yielded by a particular model or theory." (1953, The Methodology of Positive Economics)

1977: James Meade
"My interest in economics had the following roots. Like many of my generation I considered the heavy unemployment in the United Kingdom in the inter-war period as both stupid and wicked. Moreover, I knew the cure for this evil, because I had become a disciple of the monetary crank, Major C.H. Douglas, to whose works I had been introduced by a much loved but somewhat eccentric maiden aunt. But my shift to the serious study of economics gradually weakened my belief in C.H. Douglas's A+B theorem, which was replaced in my thought by the expression MV = PT." (2003, James E. Meade - Biographical)

1977: Bertil Ohlin
"International trade theory has, in my opinion, given far too much attention to the effects of certain variations, for example, in duties, on the national incomes, and too little to the effects on individual incomes. In many cases, changes in the sums count for very little, while changes in the individual incomes are distinctly relevant." (2000, Ohlin versus Stolper-Samuelson)

1978: Herbert Simon
"Modem mainstream economic theory bravely assumes that people make their decisions in such a way as to maximize their utility. Accepting this assumption enables economics to predict a great deal of behavior (correctly or incorrectly) without ever making empirical studies of human actors." (1990, Invariants of Human Behavior)

1979: William Arthur Lewis
"Collective judgment of new ideas is so often wrong that it is arguable that progress depends on individuals being free to back their own judgment despite collective disapproval." (Brainy Quotes)

1979: Theodore Schultz
"Human beings are incontestably capital from an abstract and mathematical point of view." (1961, Investment in Human Capital)

1980: Lawrence Klein
"It is my firm belief that the only satisfactory test of economics is the ability to predict, and in crucial predictive situations such as reconversion after WWII, the settlement of the Korean War, the settlement of the Vietnam War, the abrupt economic policy switch of the Nixon administration in August 1972, the oil shock of 1973 (forecast of a world-wide succession by link), the recession in 1990. In these crucial periods, econometric models outperformed other approaches, yet there is considerable room for improvement, and that is precisely what is being examined in the development of high frequency models that aim to forecast the economy, every week, every fortnight, or every month, depending on the fitness of the information flow." (1980, Lawrence R. Klein Biographical)

1981: James Tobin
"Economics has always flourished and acquired energy from controversies generated by practical policy questions of the day. That was true in the times of Smith, and Ricardo, and Keynes, and it is true today. These periods of division and revolution and counterrevolution are generally followed by periods of synthesis and consolidation from which the science emerges stronger. I am optimistic that this will happen again, and that the best of the insights of the new clasicals will be absorbed in a mainstream, in which the essential insights of Keynesian economists also survive." (1983, Conversations with Economists)

1982: George Stigler
"In spite of assigning little influence of economists' preachings on actual public policy, I do not believe that economists' influence is negligible. The reconciliation of these views lies in the fact that economists are scientists as well as preachers. Our science seeks to understand how economic institutions and economic systems work, and no informed person can deny that we have made much progress in this work." (1988, The Effect of Government on Economic Efficiency)

1983: Gerard Debreu
I had become interested in economics, an interest that was transformed into a lifetime dedication when I met with the mathematical theory of general economic equilibrium." (1983, The Nobel Prizes)

1984: Richard Stone
"The usefulness of observation and measurement in testing economic theories arises because the theorems of economics are supposed to relate to the actual world... Any economic theorem rigorously deduced from given postulates may be regarded as a hypothesis about the actual world which experience may show to be false." (1951, Role of Measurement in Economics)

1985: Franco Modigliani
"Economists agree about economics - and that's a science - and they disagree about economic policy because that's a value judgment... I've had profound disagreements on policy with the famous Milton Friedman. But, on economics, we agree." (Brainy Quotes)

1986: James M. Buchanan
"Public choice did not emerge from some profoundly new insight, some new discovery, some social science miracle. Public choice, in its basic insights into the workings of politics, in corporates an understanding of human nature that differs little, if at all, from that of James Madison and his colleagues at the time of the American Founding." (Brainy Quotes)

1987: Robert Solow
"Suppose someone sits down where you are sitting right now and announces to me that he is Napoleon Bonaparte. The last thing I want to do with him is to get involved in a technical discussion of cavalry tactics at the Battle of Austerlitz. If I do that, I'm getting tacitly drawn into the game that he is Napoleon Bonaparte. Now, Bob Lucas and Tom Sargent like nothing better than to get drawn into technical discussions, because then you have tacitly gone along with their fundamental assumptions; your attention is attracted away from the basic weakness of the whole story. Since I find that fundamental framework ludicrous, I respond by treating it as ludicrous – that is, by laughing at it – so as not to fall into the trap of taking it seriously and passing on to matters of technique." (1983, Conversations with Economists)

1988: Maurice Allias
"Any author who uses mathematics should always express in ordinary language the meaning of the assumptions he admits, as well as the significance of the results obtained. The more abstract his theory, the more imperative this obligation. In fact, mathematics are and can only be a tool to explore reality. In this exploration, mathematics do not constitute an end in itself, they are and can only be a means." (1997, La formation scientifique, Une communication du Prix Nobel d’économie, Maurice Allais)

1989: Trygve Haavemlo
"What makes a piece of mathematical economics not only mathematics but also economics is, I believe, this: When we set up a system of theoretical relationships and use economic names for the otherwise purely theoretical variables involved, we have in mind some actual experiment, or some design of an experiment, which we could at least imagine arranging, in order to measure those quantities in real economic life that we think might obey the laws imposed on their theoretical namesakes." (1994, The Probability Approach in Economics)

1990: William Sharpe
"From a more theoretical viewpoint, one can focus on the nexus between the present and the future. A financial instrument typically represents a property right to receive future cash flows. Such cash flows will, of course, come in the future – hence the economics of time must be understood. In many cases the flows are uncertain, hence the need for an approach to the economics of uncertainty. In addition, cash flows in the far future may depend on actions taken (or not taken) in the near future. This gives rise to the need for a theory of the economics of options (broadly construed). Finally, one needs information to estimate likely future outcomes, hence the requirement for an understanding of the economics of information. I define financial economics so that it embraces all four of these important, difficult, and fascinating aspects of economics." (1992, Lecture at Trinity University)

1990: Merton Miller
"I had some of the students in my finance class actually do some empirical work on capital structures, to see if we could find any obvious patterns in the data, but we couldn't see any." (Brainy Quotes)

1990: Harry Markowitz
"During the 1950s, I decided, as did many others, that many practical problems were beyond analytic solution and that simulation techniques were required. At RAND, I participated in the building of large logistics simulation models; at General Electric, I helped build models of manufacturing plants." (Brainy Quotes)

1991: Ronald Coase
But a theory is not like an airline or bus timetable. We are not interested simply in the accuracy of its predictions. A theory also serves as a base for thinking. It helps us to understand what is going on by enabling us to organize our thoughts. Faced with a choice between a theory which predicts well but gives us little insight into how the system works and one which gives us this insight but predicts badly, I would choose the latter, and I am inclined to think that most economists would do the same." (1981, How should economists choose?)

1992: Gary Becker
"Still, intuitive assumptions about behavior is only the starting point of systematic analysis, for alone they do not yield many interesting implications." (Brainy Quotes)

1993: Douglass North
The first economic revolution was not a revolution because it shifted man's major economic activity from hunting and gathering to settled agriculture. It was a revolution because the transition created an incentive change for mankind of fundamental proportions. The incentive change stems from the different property rights under the two systems. When common property rights over resources exist, there is little incentive for the acquisition of superior technology and learning. In contrast, exclusive property rights which reward the owners provide a direct incentive to improve efficiency and productivity, or, in more fundamental terms, to acquire more knowledge and new techniques. It is this change in incentive that explains the rapid progress made by mankind in the last 10,000 years in contrast to his slow development during the long era as a primitive hunter/gatherer." (1990, Economic Behavior and Institutions)

1993: Robert Fogel
"Economic history has contributed significantly to the formulation of economic theory. Among the economists who have found history an important source for their ideas are Smith, Malthus, Marx, Marshall, Keynes, Hicks, Arrow, Friedman, Solow, and Becker. Failure to take account of history, as Simon Kuznets (1941) stressed, has often led to a misunderstanding of current economic problems by investigators who have not realized that their generalizations rested upon transient circumstances. Nowhere is the need to recognize the role of long-run dynamics more relevant than in such pressing current issues as medical care, pension policies, and development policies." (1993, Economic Growth, Population Theory, and Physiology)

1994: John Harasanyi
"In principle, every social situation involves strategic interaction among the participants. Thus, one might argue that proper understanding of any social situation would require game-theoretic analysis. But in actual fact, classical economic theory did manage to sidestep the game-theoretic aspects of economic behavior by postulating perfect competition, i.e., by assuming that every buyer and every seller is very small as compared with the size of the relevant markets, so that nobody can significantly affect the existing market prices by his actions." (1997, Games with Incomplete Information)

1994: John Forbes Nash Jr.
"I can observe the game theory is applied very much in economics. Generally, it would be wise to get into the mathematics as much as seems reasonable because the economists who use more mathematics are somehow more respected than those who use less. That's the trend." (Brainy Quotes)

1994: Reinhard Selten
"Models of bounded rationality describe how a judgement or decision is reached (that is, the heuristic processes or proximal mechanisms) rather than merely the outcome of the decision, and they describe the class of environments in which these heuristics will succeed or fail." (2001, Bounded Rationality)

1995: Robert Lucas Jr.
"Like so many others in my cohort, I internalized its view that if I couldn't formulate a problem in economic theory mathematically, I didn't know what I was doing. I came to the position that mathematical analysis is not one of many ways of doing economic theory. It is the only way. Economic theory is mathematical analysis. Everything else is just picture and talk." (2001, memoir)

1996: William Vickrey
"In such a context, it should be clear that balancing a nominal budget will solve nothing, and attempting to achieve such a spurious balance will produce much mischief." (2004, Full Employment and Price Stability)

1996: James Mirrlees
"Economics takes a while to learn, even if much of it is in a way quite simple. It is simple to be wrong as well as to be right, and it is none too easy to distinguish between them." (1996, James Mirrlees in: Anders Barany, ‎Nobelstiftelsen)

1997: Myron Scholes
"All models have faults - that doesn't mean you can't use them as tools for making decisions." (Brainy Quotes)

1997: Robert Merton
"The special sphere of finance within economics is the study of allocation and deployment of economic resources, both spatially and across time, in an uncertain environment. To capture the influence and interaction of time and uncertainty effectively requires sophisticated mathematical and computational tools." (Brainy Quotes)

1998: Amartya Sen
"From the mid-1970s, I also started work on the causation and prevention of famines." (Brainy Quotes)

1999: Robert Mundell
"I have never believed that central banks should have rigid inflation targeting. That is not a good thing to stabilize. There is nothing in economic theory to back this." (Brainy Quotes)

2000: Daniel McFadden
"A good way to do econometrics is to look for good natural experiments and use statistical methods that can tidy up the confounding factors that Nature has not controlled for us." (Brainy Quotes)

2000: James Heckman
"The scientific study of labor economics provided the opportunity for me to unite theory with evidence my lifetime intellectual passion." (Brainy Quotes)

2001: Joseph Stiglitz
"The free market policies were never based on solid empirical and theoretical foundations, and even as many of these policies were being pushed, academic economists were explaining the limitations of markets — for instance, whenever information is imperfect, which is to say always." (2007, Bleakonomics)

2001: Michael Spence
"The research side of academic life is often viewed from the outside as a solo and, at times, lonely activity. In fact, it is quite the opposite: a communal activity in significant part where interaction and interchange generate ideas and critiques of them." (Brainy Quotes)

2001: George Akerlov
Prior to the early 1960s, economic theorists rarely constructed models customized to capture unique institutions or specific market characteristics." (Brainy Quotes)

2002: Vernon Smith
"When the theory performs well you also think, 'Are there parallel results in naturally occurring field data?' You look for coherence across different data sets because theories are not specific to particular data sources. Such extensions are important because theories often make specific assumptions about information and institutions which can be controlled in the laboratory, but which may not accurately represent field data generating situations. Testing theories on the domain of their assumptions is sterile unless it is part of a research program concerned with extending the domain of applications of theory to field environments." (Brainy Quotes)

2002: Daniel Kahneman
"Most of us view the world as more benign than it really is, our own attributes as more favorable than they truly are, and the goals we adopt as more achievable than they are likely to be. We also tend to exaggerate our ability to forecast the future, which fosters overconfidence. In terms of its consequences for decisions, the optimistic bias may well be the most significant cognitive bias. Because optimistic bias is both a blessing and a risk, you should be both happy and wary if you are temperamentally optimistic." (2001, Bias, Blindness and How We Truly Think)

2003: Robert Engel
"I agree with a lot of the points in Taleb's book, but I don't agree with many of his conclusions. It seems to me that he rightly points out that risk managers miss a lot of the risks, but the conclusion is that he draws, is that we should abandon risk management, whereas my conclusion is we should improve it." (Brainy Quotes)

2003: Clive Granger
"Rob Engle and I are concerned with extracting useful implications from economic data, and so the properties of the data are of particular importance." (Brainy Quotes)

2004: Edward Prescott
"Economists create their own worlds. We're like little gods with our artificial economics, wanting to see what happens." (Brainy Quotes)

2004: Finn Kydland
"I think the biggest challenge is the lack of predictability of government policies. It has different facets. The theory with which I’m associated with is called the inconsistency of optimal government policy, or the time inconsistency, I should say." (Brainy Quotes)

2005: Thomas Schelling
"What this book is about is a kind of analysis that is characteristic of a large part of the social sciences, especially the more theoretical part. That kind of analysis explores the relation between the behavior of individuals who compromise some social aggregate, and the characteristics of the aggregate. These situations, in which people's behavior or people's choices depend on the behavior or choices of other people, are the ones that usually don't permit any simple summation or extrapolation of the aggregates. To make that connection we usually have to look at the system of interaction between individuals and their environment, that is, between individuals and other individuals or between individuals and the collectivity." (1978, Micromotives and Microbehavior)

2005: Robert Aumann
"The theory of repeated games is able to account for phenomena such as altruism, cooperation, trust, loyalty, revenge, threats (self-destructive or otherwise) – phenomena that may at first seem irrational – in terms of the “selfish” utility-maximizing paradigm of game theory and neoclassical economics." (2005, War and Peace)

2006: Edmund Phelps
"Statistical studies are all over the lot about the pluses and minuses of raising the minimum wage." (Brainy Quotes)

2007: Eric Maskin
"It’s true that my initial training was in mathematics. However, almost by accident, I happened to take a course from Kenneth Arrow on “Information Economics,” which was so inspiring that I decided to change direction. It seemed to me that economics combined the best of both worlds: the rigor of mathematics with the immediate relevance of a social science. As for how much math I would recommend, I’d say that basic analysis, including measure theory, is certainly very useful. Also, linear algebra and stochastic processes always helps. But beyond that, I don’t think a huge mathematical investment is necessary to do economic theory unless you are planning to work in an extremely technical area." (2013, Interview with Eric S. Maskin: Questions by TSE Students)

2007: Roger Myerson
"You have to learn the methods, statistical, theoretical, analytical methods of economics and how can you very, very carefully use those methods to shed a little bit more light on these important questions you feel strongly about... If you do great work in economics it will be because you are using good analytical methodology where you learned the mathematical techniques of the field very, very carefully, you will offer a little bit more clearer way of seeing that offers some clarity, some additional perspective on some much bigger question." (Brainy Quotes)

2007: Leonid Hurwicz
"Traditionally, economic analysis treats the economic system as one of the givens. The term "design" in the title is meant to stress that the structure of the economic system is to be regarded as an unknown. An unknown in what problem? Typically that of finding a system that would be, in a sense to be specified, superior to the existing one. The idea of searching for a better system is at least as ancient as Plato’s Republic, but it is only recently that tools have become available for a systematic, analytical approach to such search procedures. This new approach refuses to accept the institutional status quo of a particular time and place as the only legitimate object of interest and yet recognizes constraints that disqualify naive Utopias." (1973, The designs of mechanisms for resource allocations)

2008: Paul Krugman
"But the honest truth is that what drives me as an economist is that economics is fun. I think I understand why so many people think that economics is a boring subject, but they are wrong. On the contrary, there is hardly anything I know that is as exciting as finding that the great events that move history, the forces that determine the destiny of empires and the fate of kings, can sometimes be explained, predicted, or even controlled by a few symbols on a printed page. We all want power, we all want success, but the ultimate reward is the simple joy of understanding." (1995, Incidents from my Career)

2009: Elinor Ostrom
"What is missing from the policy analyst's tool kit - and from the set of accepted, well-developed theories of human organization - is an adequately specified theory of collective action whereby a group of principals can organize themselves voluntarily to retain the residuals of their own efforts." (1966, Governing the Commons)

2009: Oliver Williamson
"For those who, like myself, are inclined to be eclectic, no comprehensive commitment to one approach rather than another needs to be made. What is involved, rather, is the selection of the approach best suited to deal with the problems at hand.” (1975, Markets and Hierarchy)

2010: Peter Diamond
"Analytical expertise is needed to make government more effective and efficient. Skilled analytical thinking should not be drowned out by mistaken, ideologically driven views that more is always better or less is always better." (2011, New York Times)

2010: Dale Mortensen
"Economics is a strange science. Our subject deals with some of the most important as well as mundane issues that impinge on the human condition." (Brainy Quotes)

2010: Chirstopher Pissarides
"The development of formal mathematical models with search frictions coincided with the time that I was looking for a topic for my PhD research.2 Two things about search impressed me most. In the Phelps volume, search was claimed as a microfoundation for the natural rate of unemployment, introduced just a year or two before by Milton Friedman (1968) and Edmund Phelps (1967), and for the inflation-unemployment trade-off (the Phillips curve)."

2011: Thomas Sargent
"My recollection is that Bob Lucas and Ed Prescott were initially very enthusiastic about rational expectations econometrics. After all, it simply involved imposing on ourselves the same high standards we had criticized the Keynesians for failing to live up to. But after about five years of doing likelihood ratio tests on rational expectations models, I recall Bob Lucas and Ed Prescott both telling me that those tests were rejecting too many good models." (2005, Interview with Thomas Sargent)

2011: Christopher Sims
"There isn't much political coloration in my economic writing; it's not surprising that few people know my political views. They really aren't very important." (Brainy Quotes)

2012: Alvin Roth
"Experimental economics is about conducting experiments: bringing economics into the laboratory or creating controlled conditions in the field that allow us to understand better what we are seeing in less controlled circumstances." (Brainy Quotes)

2012: Lloyd Shapley
"I'm a mathematician and always have been, as far as I can remember. I don't remember when I first got involved with mathematics, but I think of myself always as a mathematician first." (Brainy Quotes)

2013: Robert Shiller
"It amazes me how people are often more willing to act based on little or no data than to use data that is a challenge to assemble." (Brainy Quotes)

2013: Lars Peter Hansen
I view the work I've done related to statistics and economics as roughly speaking, how to do something without having to do everything. So economic models - how any model by definition isn't right. When someone just says, 'Oh, your model is wrong.' That's not much of an insight. What you want to know is, is it wrong in important ways or wrong in ways that are less relevant? And you want to know what does the data really say about the model?" (2013, Lars Peter Hansen on imperfect models)

2013: Eugene Fama
"The empirical successes of the three-factor model suggest that it is an equilibrium pricing model, a three-factor version of Merton’s intertemporal CAPM or Ross’s  arbitrage pricing theory. In this view, SMB and HML mimic combinations of two underlying risk factors or state variables of special hedging concern to investors." (1993, Common risk factors in the returns on stocks and bonds)

2014: Jean Tirole
"Since then, however, the Industrial Organization field has undergone rapid development, indeed a revolution. This revolution has greatly enhanced our understanding of imperfectly competitive markets, which in turn has laid a foundation for better informed competition policy. Comparable progress has been made in the theory of optimal regulation of firms with market power." (2014, Market Power and Regulation)

2015: Angus Deaton
"Economists focus on income, public health scholars focus on mortality and morbidity, and demographers focus on births, deaths, and the size of populations. All of these factors contribute to wellbeing, but none of them is wellbeing." (2013, The Great Escape)

2016: Bengt Holmstrom
"Models are sort of like conversation partners. You’re asking questions of the models and the models answer." (2013, Open Markets Evan Peterson)

2016: Oliver Hart
"I never think that economics provides the full answers to almost anything. This is one of the mistakes people make about economics and in this way they are often disappointed. They ask 'why can't the economists predict the great recession?' I think that's misunderstanding what economics is about. Economics a helpful tool and there are many problems or questions where having economists give their views on what should be done is going to be extremely helpful. But it doesn't mean you only want to listen to them." (2016, Interview with Oliver Hart)