NIH Grantees Awarded Nobel Prize in Economics

Wednesday, October 11, 2000

Two long-time National Institutes of Health grantees — Dr. James J. Heckman, of the University of Chicago, and Dr. Daniel L. McFadden, of the University of California at Berkeley — were awarded the Bank of Sweden Prize in Economic Sciences in memory of Alfred Nobel, 2000.

The prize is for their work in the field of microeconometrics, where each of the laureates has developed theory and methods that are widely used in the statistical analysis of individual and household behavior, within economics as well as other social sciences.

The citation reads "to James Heckman for his development of theory and methods for analyzing selective samples and to Daniel McFadden for his development of theory and methods for analyzing discrete choice."

Dr. Ruth Kirschstein, Principal Deputy Director of the National Institutes of Health, expressed her delight that these two NIH grantee scientists have made such significant advances in the social sciences. "Over the years, most of the 100 Nobel Laureates who have been funded by NIH to advance scientific knowledge won their prizes in physiology or medicine, or in chemistry," Dr. Kirschstein said. "I am happy to see that the honor has been extended to NIH-supported work in economics."

Dr. Heckman was awarded the Nobel Prize in Economics for his pioneering work in accounting for unknown factors affecting statistical samples. Much of his work has been applied to understanding how early life events contribute to individuals? later earnings potential and economic standing.

Specifically, Dr. Heckman's efforts have provided researchers with the methods to determine the effects of poverty and other environmental factors on the life choices that individuals make.

Dr. Heckman's microeconometric models have provided the standard for researchers the world over? said Duane Alexander, M.D., Director of the National Institute of Child Health and Human Development (NICHD), the NIH institute that funded much of Dr. Heckman's research over the last decade? His research also points to the critical nature of the first five years of life as predictive of such later life events as dropping out of high school, teenage pregnancy, and early divorce?

Dr. Heckman has developed statistical methods for interpreting selective samples-large samples of individuals having at least some characteristics that are unknown to researchers studying the samples. His methods allow researchers to account for factors they are otherwise unable to observe, analogous to an observer arriving too late to see a deer crossing a path, but learning of the animal's passing by the tracks it left in the snow.

According to the NICHD project officer for the grant, V. Jeffery Evans, Ph.D, of the Institute's Demographic and Behavioral Sciences Branch, Dr. Heckman is currently being funded by the NICHD to study the effects of earning a high school equivalency diploma, or G.E.D, on an individual's later economic prospects.

Much of Dr. Heckman's research suggests that later economic difficulties may stem from events occurring within the first five years of life? Dr. Evans said? His work offers a theoretical foundation for other NICHD research examining such aspects of early development as behavior problems, failure to learn basic skills, environmental and social stimulation, environmental toxins, and even factors that affect the individual before birth?

Another NIH Institute, the National Institute of Mental Health, has also provided support for Dr. Heckman's early research.

Dr. McFadden, professor of economics at the University of California, Berkeley, was cited for his work involving a new theory of "discrete choice," a way to measure how an individual's decisions regarding occupation or housing, for instance, reflect choices among a limited number of alternatives. "Application of these theories has broad implications for understanding the economic and other social behavior of individuals approaching and in retirement," notes Dr. Richard M. Suzman, head of the National Institute on Aging's (NIA) Behavioral and Social Research Program. Through Dr. Suzman's program, Dr. McFadden has received support for his work from the NIA since 1986.

A number of important topics for understanding economic behavior and its consequences have been examined by Dr. McFadden in his association with the Institute and other leading researchers in the field of aging. These primarily focus on:

  • Ways to determine the effects of a declining birth rate and aging population on the housing market. Understanding that housing equity makes up a large part of the net worth of most elderly households, Dr. McFadden sought to find ways to project the future of housing wealth among older individuals and how individuals anticipate housing market changes as they age. This work, part of a larger project on the economics of aging led by Dr. David Wise of Harvard and the National Bureau for Economic Research (NBER), showed that the large gains of the housing market in the 1960s and 1970s will not extend to the baby boomer generation and that changes in this market could have a detrimental effect on the wealth and well-being of future elderly.
  • Studying the relationship between how long a person expects to live and how much they save. This current work, with economist Dr. Michael Hurd of RAND, Corp. and the NBER, will allow scientists to better understand how people use subjective information in making choices. It will help determine whether an individual's beliefs about his own survival correspond with actual life expectancy and whether the belief influences saving behavior for retirement. Research in this area involves use of the NIA-sponsored Health and Retirement Study, the largest survey to date looking at the health and well-being of people as they age.
  • Extensive methodological work on the measurement of wealth of the elderly. Specifically, Dr. McFadden has analyzed the use of the "unfolding brackets" approach in surveys, a technique which has allowed older people who are reluctant or can't recall their exact wealth to estimate it within a series of bracketed ranges. His work on response errors in these techniques has increased the reliability of economic data on the elderly and allowed for significantly improved analysis.