The Nobel Prize in Economics and What It Means for Your Classroom

On October 12, two American economists won the Nobel Prize in Economic Sciences. Robert Hall, a professor of economics at Stanford, and Michael Woodford, a professor of political economy at Columbia, were recognized for research that helps explain the economic cycle of boom and bust, and how governments can implement stabilization policies to mitigate high unemployment and high inflation.

When the committee announced the prize, one member pulled up a picture of an ice cream menu to better help explain how Hall and Woodford's macroeconomic models worked.

For a deeper dive on this analogy, we think Planet Money wrote a good article explaining the connection.

The point being that when business slows down, businesses don't automatically lower their prices to win customers back (like an ice cream menu during the winter months). They hold prices steady, sometimes for a whole season, and instead sell less, cut hours, or lay workers off. Economists call this "sticky prices" (another ice cream parallel), and it has proven to have significant consequences for how recessions unfold and how difficult they can be to escape.

Hall and Woodford refined Keynesian theory, showing that you cannot predict what an entire economy will do without first understanding what the individuals inside it expect to happen next. If people expect a raise, they start spending more before the raise actually arrives. If businesses expect demand to stay low, they hold off on hiring even as conditions improve.

Want to see the history behind this research? Platypus Economics put together a great video explaining Hall and Woodford's work and why it earned the prize.

Hall and Woodford spent their careers building models that better contextualize and explain this phenomenon. Their work is now used by central banks around the world, including the Federal Reserve, to design policy responses to economic downturns and periods of high inflation. The importance of consumer expectations explains why the Fed uses forward guidance to signal where it expects interest rates to go over the next year,

That connection between individual decisions and economy-wide outcomes is exactly what students work through in Lessons 3.12: Monetary Policy and the Federal Funds Rate and Lesson 3.13: A Practical Guide to the U.S. Economy: Part 2 on stabilization policy, and in Lessons 3.17: Beyond the Big 3: Part 1 and Lesson 3.18: Beyond the Big 3: Part 2, which bring in consumer confidence and the role that expectations play in how the economy moves.

How Nobel Prize-Winning Economics Research Connects to High School Lessons

Nobel Prize-winning research and high school economics have more in common than you might expect.

Eight of the last 12 Nobel Prizes in Economics connect directly to Econiful lessons. That's not because we have a hotline to Stockholm or possess a crystal ball (though, wouldn't that be cool?), but because the prize continues to recognize advancements in the same fundamental questions students and economists grapple with on a daily basis.

The Nobel committee continues to prioritize and recognize research on the same questions students encounter in their high school economics courses, because those questions are both complex and incredibly important for our daily lives. At Econiful, we feel it's important for students to understand they are not studying economics as a historical artifact — they are studying the problems economists are still working on.

How to Use the Nobel Prize in Economics as a Teaching Tool

Every October, the Nobel Prize gives teachers a current event that connects directly to what students are already studying in class.

The Nobel Prize gets announced every October. This year's winners spent their careers studying why recessions and inflationary spirals are hard to escape and what policymakers can do about it — the same questions students are working through in Unit 3. Economics is a discipline where frontier research and classroom concepts are often quite similar, just at different levels. Pointing students to the prize, and to the lessons it connects to, can give the material more context and relevance in ways that textbooks cannot.

The Nobel site publishes a free popular summary (with illustrations!) for each prize, written with a general audience in mind. For this year's prize, the summary pairs with Lessons 3.12 through 3.18, and gives students a chance to see the same concepts they have been working through applied to real policy decisions.

It also opens up a bigger conversation worth having: many economic questions are still unsolved, and the prize is a reminder that the discipline is still working on them. We encourage asking students questions like "What economic problems matter to you?" and "Which would you be most interested in working on?" This kind of discussion invites your students to connect economics to their lives and imagine themselves as future economists.

Megan Kirts

Executive Director  ·  Econiful

Megan Kirts is the Executive Director of Econiful and a veteran economics educator with nearly two decades in the field. A former high school social studies teacher, she currently serves as Director of the University of Arizona Office of Economic Education and as an Instructor and Curriculum Developer at 3rd Decade, and brings that experience directly into everything Econiful builds.