Nobel Prize in Economics : 2011

Thomas J. Sargent and Christopher A. Sims of the US won the 2011 Nobel Prize in Economics "for their empirical research on cause and effect in the macroeconomy," the Royal Swedish Academy of Sciences said Monday.

The Nobel Prize in Economics was established by Sweden's Riksbank in 1968 to mark the central bank's 300th anniversary. The prize is awarded annually for "work of outstanding importance" in the field of economic science and the winners are selected by the Royal Swedish Academy of Sciences.

Mr. Sargent is perhaps best known for his work in the early 1970s on "rational expectations theory," which argues that people base their behavior not just on government policies but also on what they expect those policies and their impacts to be in the future.

The 2011 Nobel Prizes

Mr. Sargent, 68, is now a professor at New York University and a senior fellow at the Hoover Institution, but he did much of his most significant work at the University of Minnesota, where he was a professor from 1971 to 1987. While in Minnesota, Mr. Sargent served as an adviser to the Federal Reserve Bank of Minneapolis. He has also taught at the University of Chicago. Mr. Sargent earned his Ph.D. at Harvard in 1968 and did his undergraduate work at the University of California at Berkeley.

Mr. Sims is best known for his work with methods used to tease statistical relationships out of reams of data. Like Mr. Sargent, he did much of his early work at the University of Minnesota, where he taught from 1974 to 1990. After a stint at Yale, he came to Princeton in 1999 -- one of former Princeton economics department chairman Ben Bernanke's many high-level hires. In a celebrated 1980 paper, Mr. Sims showed how vector auto regressions -- a statistical technique now widely used by economists -- could be applied to studying changes in the economy. "He said, let's push statistics as far as we possibly can and figure out what we can pull out of the data and what we cannot," says Middle bury College economist David Colander. "That was a major advance in macroeconomics."

Mr. Sims continued to build on that idea, working on ways to uncover the lines of cause and effect in the economy. On a conference phone call with the Bank of Sweden Monday morning, Mr. Sims said that he didn't know how to solve the world's economic problems, but that he thinks the techniques he and Mr. Sargent developed "are central to getting us out of this mess."

The two economists will share a total prize of 10 million Swedish kronor ($1.5 million), the same amount as for other Nobel prizes, to be paid by the Riksbank.