Oct 14, 2021 - Economy

A Nobel for experimental economics

David Card.

David Card. Photo illustration: Annelise Capossela. Photo of David Card: Jonathan Nackstrand/AFP,  UC Berkeley via Getty Images

David Card, Joshua Angrist and Guido Imbens won the economics Nobel this week, not so much for what they discovered but for how they discovered it.

Why it matters: While fellow laureates Esther Duflo, Abhijit Banerjee, and Michael Kremer are famous for designing experiments to quantify the effects of economic interventions, this year's winners try to find natural experiments that shed light on whether economic theory is actually true.

Card's most famous paper, comparing unemployment in New Jersey and Pennsylvania, showed that economic theory was wrong about the minimum wage — that raising it could have little or no effect on unemployment, in the real world.

  • Other natural experiments found by the winners involved things like the lottery number individuals received in the Vietnam War draft, or — in the case of a paper that Alex Tabarrok calls "one of the most beautiful in all of economics" — the month that people were born in, which has a small but significant effect on how much education they receive.

The bottom line: If economics has any claim to being a science, it has to be falsifiable. Card, in falsifying at least one economic theory, arguably helped make his subject a science.

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