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October 12, 2009

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New research may take economics prize

AS the globe grapples with the problem of greenhouse gases and tries to restore the battered economy to health, research into the economics of climate change or the key to what truly makes consumers tick could be contenders for this year's Nobel prize in economics.
The last of the six Nobel prizes announced this year, the Nobel Memorial Prize in Economic Sciences to be announced today, is not among the original awards and was created in 1968 by the Swedish central bank in Alfred Nobel's memory.
Though the prize committee most often chooses to reward older research that has stood the test of time, relatively new work on consumer thinking from Austrian Ernst Fehr, a behavioral economist of the University of Zurich, is running high in the speculation debate.
Matthew Rabin, a 45-year-old American at the University of California at Berkeley with similar interests, is also mentioned frequently.
Fehr's research backs up the adage that revenge is sweet. Fehr found that the part of the human brain associated with satisfaction was more active when people contemplated getting even.
An elaborate laboratory game was structured so that players would earn the most money if they trusted their partners and parted with their money. Players were offered the option of seeking revenge by fining double-crossers but were warned that doing so would cost them. "In the end, what we have shown is that reward circuits in the brain are activated when people can punish the other person," Fehr said. "People don't gain something in economic terms; they get something in psychological terms."
Rabin has studied the economics of immediate gratification, and the implications of people's self-control problems for consumer choice, marketing, incentive theory and addiction.
Other favorites include professors Martin Weitzman of Harvard University and William Nordhaus, from Yale, who have made contributions to the economics of climate change.
Micro-economist Bengt Holmstrom at the Massachusetts Institute of Technology is also among the favorites for his research into the design of contracts and how that can shape long-term incentives.
But, experts warn about speculating too much about contemporary research. Despite current events, the Nobel economics prize is rarely linked to recent findings and contemporary economic swings, said Hubert Fromlet, a professor in International Economics at the Jonkoping International Business School in Sweden.


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