How nobel-prize breakthroughs in economics emerge and the field’s influential empirical methods

• Authors: Alexander Krauss.
• Journal of Economic Behavior & Organization
• Behavioral and Experimental Economics

What drives groundbreaking research in economics? Nobel-prize-winning work has had an important impact on public policies, but we still do not understand well what drives such breakthroughs. We collect data on all nobel-prize discoveries in economics to address this question. We find that major advances in the field of economics are brought about by methodological innovation: by developing new and improved research methods. We find that developing for example econometrics in 1933, randomised controlled trials in 1948 and new game theory methods in 1950 were essential to opening the new fields of corporate finance, experimental economics and information economics, respectively. We identify the development of new methods as the main mechanism driving new discoveries and research fields. Fostering this general mechanism (generating novel methods) holds the potential to greatly increase the rate at which we make new breakthroughs and fields. We also show that many of the main methods of economics – such as randomised controlled trials, natural experiments, regression discontinuity, instrumental variables and other statistical methods – had been developed and used in other fields like public health, before economists adopted them. This shift towards more powerful empirical methods in the field has important implications on developing new and better methods and adopting them from related fields to make new advances more rapidly.