Jean Tirole on Economics for the Common Good

When Jean Tirole won the 2014 Nobel Prize in Economics, he suddenly found himself being stopped in the street by complete strangers and asked to comment on issues of the day, no matter how distant from his own areas of research. His transformation from academic economist to public intellectual prompted him to reflect further on the role economists and their discipline play in society. The result is Economics for the Common Good, a passionate manifesto for a world in which economics, far from being a “dismal science,” is a positive force for the common good.

What inspired you to write this book, and what did you learn in the process?

I wanted to show how economics can open a window to the world. I have long taken part in policymaking, conversing with private and public decision-makers, but as yet I had never engaged with the wider public.  After receiving the Nobel Prize I was regularly asked by people I met in the street or as I gave talks to explain to a broader audience the nature of economic research and what it contributes to our well-being. Not as a commentator on each and every topic, but simply to share with the public how scientific knowledge can guide economic policies and help us understand the world we (will) live in. I tried to write a book that is intelligible for any intellectually curious reader even with no or slight knowledge of economics. The book is divided into 17 stand-alone chapters so the reader can pick and choose.

Can you talk a bit about the value of making economic ideas comprehensible to a general audience?

Repeatedly blaming politicians for flawed policies won’t get us very far. Like us all, they respond to the incentives they face, in their case the hope of being (re)elected. Very rarely do they go against majoritarian public opinion. So we, citizens, get the policies we deserve. And as I explain in the book, our understanding of economic phenomena is obfuscated by various cognitive biases; we are dependent on rules of thumb and narratives, and we often believe what we want to believe, see what we want to see. Economics acts as a deciphering key, although it of course has its own shortcomings.

In the book you talk about economics for the common good. What exactly is “the common good?”

Economics for the Common Good is an ambition: to help our institutions serve general interest by studying those situations in which individual motives conflict with the interests of society, in order to suggest policies that align social and private interests. The invisible and the visible hands—the market and the State—are mutually complementary; to function well a market economy needs an efficient State to correct its failures. But sometimes the State does not work for the Common Good; for example, many countries are leaving their children substantial levels of unfunded public debt, unemployment, a degraded educational system, inequality, and a lack of preparation for the digital upheaval that our societies are on the brink of encountering. And the world does little to contain climate change. The book therefore pays particular attention to what is going wrong with governments and how this can be remedied to promote the Common Good.

Why do economists have a reputation as “scaremongers?”

I have already mentioned our cognitive biases. Economics is accessible, but can be counterintuitive if one stops at first impressions. Accordingly, and as I illustrate in the book though housing, labor market, climate and other public policies, the road to economic hell is often paved with good intentions. Public policies—the reflection of the electorate’s beliefs—too often ignore side effects. Contrary to general opinion, these side effects are usually borne by third parties rather than the beneficiaries of the policies. Economists, when pointing to the indirect harm on mostly invisible victims (e.g. those who don’t find a job or decent housing, or the taxpayers), are often accused of lacking empathy for the intended and very visible beneficiaries.

Economists may also be the bearers of bad news; while the classical economics representation of a society of purely self-interested individuals is a mediocre description of reality (the book details how morality is privately and socially constructed), when economists mention the need for incentives they trigger anxiety and resistance; we would all rather live in a world of honest, hardworking and empathic citizens. To my mind, the whole point of economics is to design policies and institutions that work towards reaching this different world, where individuals spontaneously operate for the Common Good.

Economics has come under sharp attack, especially since the 2008 financial crisis. Is it a science?

Economists’ judgment may be impaired by financial conflicts of interest, political friendships, or ambitions to be a publicly recognized intellectual. But we must also be humble and accept that as a science, economics is an inexact one. Like any science, it is built on to-and-fro between theory, which provides a lens to the world and allows us to understand observations and describe their implications, and empirical work, which measures the importance of effects and helps question the theory: lab experiments need fieldwork, econometrics, big data. But our knowledge is imperfect; good data may be unavailable, theories may oversimplify, and behavioral patterns and self-fulfilling phenomena (such as bank runs or bubbles) may complicate the analysis. Overall, an economist will generally feel more comfortable analyzing past events and proposing future policies rather than forecasting. A characteristic that is incidentally shared by doctors and seismologists, who detect environments that are conducive to a heart attack or an earthquake and provide useful recommendations, and at the same time may be hard-pressed to predict the exact timing of the event or even whether the latter will occur at all.

TiroleJean Tirole, the winner of the 2014 Nobel Prize in Economics, has been described as one of the most influential economists of our time. He is chairman of the Toulouse School of Economics and of the Institute for Advanced Study in Toulouse and a visiting professor at the Massachusetts Institute of Technology. His many books include The Theory of Corporate Finance and Financial Crises, Liquidity, and the International Monetary System.

Offer and Söderberg on the real-world consequences of economics–and the Nobel Prize

Offer and SoderbergThe Nobel Prize in Economics arose during a changing time for the world’s markets. Was this a coincidence? Avner Offer and Gabriel Söderberg say no. In  The Nobel Factor: The Prize in Economics, Social Democracy and the Market Turn, Offer and Söderberg detail  how the prize, which was first awarded to economists Jan Tinbergen and Ragnar Frisch in 1969, was created by the Swedish central bank to enhance the central bank authority and the prestige of market-friendly economics. Offer and Söderberg have taken some time to answer questions about the origins of this esteemed prize and how it emerged from a conflict between central bank orthodoxy and social democracy.

What is the core argument of this book?

AO & GS: Since the 1970s, academic economics and social democracy have disputed how society should be managed. The challenge is those parts of the life cycle when people have little market power, the contingencies of motherhood, education, illness, disability, unemployment, and old age. Economics claims that it is best to buy protection in financial markets, by means of saving, borrowing and insurance. This is backed up by the supposed authority of science, symbolized by the Nobel Prize in Economics. It is also the objective of business and finance in their quest to capture profit from everybody’s income streams. Social democracy deals with dependency by means of transfers from producers to dependents, providing education, healthcare, pensions, physical infrastructure and culture, and pooling the individual risks by means of taxation and transfers. We question the claims of economics to impartiality and superior reason.

Why does the Prize in Economics matter?

AO & GS: Nobel prize-winners provide a high-quality sample of economics. The prize has a halo that makes economics credible to the wider public, for policies which are often inimical to the public interest. It arose out of the long conflict between the interests of the wealthy in stable prices, and of everyone else in social and material improvement. Between the wars, this conflict became focused in central banks, which became a brake on social democracy. After the Second World War, the Swedish Central Bank clashed repeatedly with the social democratic government over financing the welfare state, and extracted the prize as a concession. The prize was then captured by conservative Swedish economists, who used it to provide credibility for sustained resistance to social democracy. This story shows how ideas and arguments work through society and politics, and how the prestige of science has been mobilised for political ends.

Who is this book for?

AO & GS: It enlarges understanding of economic and social development with a wealth of new findings that will engage students and academics in economics, social science, and history. This includes the two-thirds of economists who hold onto social-democratic values, at odds with their professional indoctrination. Policy makers in government, business, finance, and voluntary organizations may find that the concepts on which they rely are not well founded. The argument is written to be attractive to read for anyone interested in current affairs, economic policy, and the future of society, all over the world.

After the financial crisis many new books have criticized mainstream economics. How is this book different?

AO & GS: One rebuttal by economists is that critics have no alternative to offer. But economics is not in fact hegemonic: public policy is dominated by a pervasive, pragmatic and effective system of social democracy which allocates about 30 percent of GDP in most advanced countries (lower in the USA due to a private health system). ‘It works in practice, but will it work in theory?’ is the challenge of economics. It imagines a world of self-interested, rational persons whose choices scale up to a benign equilibrium, as if by an invisible hand. But this vision is arbitrary, difficult to apply, and not even consistent. Economics has turned its back to social democracy, and has also missed the buildup to the recent financial crisis.

Many Americans regard social democracy as something exclusively European. Why should Americans be interested?

AO & GS: This is delusive, like the tea party member who asked the government to take its hands off his medicare. The United States deploys a broad range of social democratic arrangements: free public schools up to eighteen, a public higher education system; health services for the indigent, the old, and military veterans; unemployment benefits, some income and disability support, and a reasonable system of old-age pensions (social security). Much of its other spending (fiscal and other subsidies, especially the mortgage interest offset against tax) is regressive and misdirected. Americans are becoming aware of the cost of their dysfunctional and expensive medical system. Educational debt is a crisis in the making. Private retirement arrangements are failing. Bernie Sanders, a self-proclaimed democratic socialist, has mounted a formidable challenge in the Democratic primaries. The other candidates have joined him in advocating more social security and free higher education; like the tea party member, the supporters of Trump are also responding to the weakness of American social democracy.

Many commentators in Europe are discussing the crisis of social democracy in terms of lack of vision and declining support. What do you think is the future of social democracy and how must it adapt to survive and flourish in the future?

AO & GS: The problems of social democracy arise partly from its success. It developed as a one-size-fits-all solution for male manual wage-earners, and was difficult to adapt to a more diverse, educated, and affluent society, and to service economies that employ men and women in almost equal proportions. Social democracy is still the bedrock of personal security. Its objectives and methods are not fully understood by its practitioners and advocates, and hardly at all by those who benefit. Centre-left politicians, beguiled by market rhetoric, have not served it well. The values of reciprocity and solidarity underpin social democracy: they are more attractive ethically than unbridled greed, but also more effective and efficient. The ‘market turn’ held out the prospect of moving beyond social democracy to private ‘nest egg’ provision for economic security. Home ownership promised wealth for everybody. Driven by easy credit and mounting debt, this seemed to work for a while but has now built up inequality, social exclusion and financial crisis. The advocates of self-regulating markets did not anticipate such a precarious outcome.

Avner Offer is Chichele Professor Emeritus of Economic History at the University of Oxford in Oxford, England. He is a fellow of All Souls College, Oxford and the British Academy.  His books include The Challenge of AffluenceGabriel Söderberg is a researcher in the Department of Economic History at Uppsala University in Uppsala, Sweden. The two recently collaborated on the book The Nobel Factor: The Prize in Economics, Social Democracy and the Market Turn.

What do these Nobel prize winning economists have in common?

Princeton Makes. Stockholm Takes.

Princeton University Press is proud to be the publisher of these Nobel Prize-winning economists

Angus DeatonThe Great Escape jacket

The Great Escape: Health, Wealth, and the Origins of Inequality

Demonstrating how changes in health and living standards have transformed our lives, The Great Escape is a powerful guide to addressing the well-being of all nations.


The Theory of Corporate Finance jacket2014 Jean Tirole

The Theory of Corporate Finance

Tirole conveys the organizing principles that structure the analysis of today’s key management and public policy issues, such as the reform of corporate governance and auditing; the role of private equity, financial markets, and takeovers; the efficient determination of leverage, dividends, liquidity, and risk management; and the design of managerial incentive packages.

2013 Lars Peter HansenRobustness jacket


What should a decision maker do if the model cannot be trusted? This book adapts robust control techniques and applies them to economics. By using this theory to let decision makers acknowledge misspecification in economic modeling, the authors develop applications to a variety of problems in dynamic macroeconomics.

Irrational Exuberance jacket2013 Robert J. Shiller

Irrational Exuberance

In addition to diagnosing the causes of asset bubbles, Irrational Exuberance recommends urgent policy changes to lessen their likelihood and severity—and suggests ways that individuals can decrease their risk before the next bubble bursts. No one whose future depends on a retirement account, a house, or other investments can afford not to read it.

Handbook of Experimental Economics jacket2012 Alvin E. Roth

The Handbook of Experimental Economics (Edited with John H. Kagel)

This book presents a comprehensive critical survey of the results and methods of laboratory experiments in economics:public goods, coordination problems, bargaining, industrial organization, asset markets, auctions, and individual decision making.

2012 Lloyd S. Shapley

Advances in Game Theory (AM-52) (Edited with Melvin Dresher & Albert William Tucker)

Shapley considers Cooperative Game Theory when discerning various match methods that result in stable matches. In this book, Shapley defines stable matches as no two entities that would prefer one another over their counterparts and recognizes processes to achieve these matches.

2011 Thomas J. SargentConquest of American Inflation jacket

The Conquest of American Inflation

Sargent examines two broad explanations for the behavior of inflation and unemployment in this period: the natural-rate hypothesis joined to the Lucas critique and a more traditional econometric policy evaluation modified to include adaptive expectations and learning. His purpose is not only to determine which is the better account, but also to codify for the benefit of the next generation the economic forces that cause inflation.

2010 Peter DiamondBehavioral Economics and Its Applications

Behavioral Economics and Its Applications (Edited with Hannu Vartiainen)

In this volume, some of the world’s leading thinkers in behavioral economics and general economic theory make the case for a much greater use of behavioral ideas in six fields where these ideas have already proved useful but have not yet been fully incorporated–public economics, development, law and economics, health, wage determination, and organizational economics. The result is an attempt to set the agenda of an important development in economics.

Understanding Institutional Diversity jacket

2009 Elinor Ostrom

Understanding Institutional Diversity

Concentrating primarily on the rules aspect of the IAD framework, this book provides empirical evidence about the diversity of rules, the calculation process used by participants in changing rules, and the design principles that characterize robust, self-organized resource governance institutions.

Mass Flourishing jacket2006 Edmund S. Phelps

Mass Flourishing

Phelps argues that the modern values underlying the modern economy are under threat by a resurgence of traditional, corporatist values that put the community and state over the individual. The ultimate fate of modern values is now the most pressing question for the West: will Western nations recommit themselves to modernity, grassroots dynamism, indigenous innovation, and widespread personal fulfillment, or will we go on with a narrowed innovation that limits flourishing to a few?

2005 Robert J. Aumann

Values of Non-Atomic Games

This book extends the value concept to certain classes of non-atomic games, which are infinite-person games in which no individual player has significance. It is primarily a book of mathematics—a study of non-additive set functions and associated linear operators.

Anticipating Correlations jacket2003 Robert F. Engle III

Anticipating Correlations:A New Paradigm for Risk Management

Engle demonstrates the role of correlations in financial decision making, and addresses the economic underpinnings and theoretical properties of correlations and their relation to other measures of dependence.

Clive W.J. Granger

Spectral Analysis of Economic Time Series (PSME-1) (with Michio Hatanaka)

Spectral Analysis of Economic Time Series expands and implements on innovative statistical methods based on Granger’s differentiating process, “cointegration”. Granger analyzes and compares short-term alterations with long-term patterns.

Identity Economics jacket2001 George A. Akerlof

Identity Economics: How Our Identities Shape Our Work, Wages, and Well-Being (with Rachel E. Kranton)

Identity Economics provides an important and compelling new way to understand human behavior, revealing how our identities–and not just economic incentives–influence our decisions.The authors explain how our conception of who we are and who we want to be may shape our economic lives more than any other factor, affecting how hard we work, and how we learn, spend, and save.

Lectures on Public Economics jacket2001 Joseph Stiglit

Lectures on Public Economics (with Anthony B. Atkinson)

The lectures presented here examine the behavioral responses of households and firms to tax changes. The book then delves into normative questions such as the design of tax systems, optimal taxation, public sector pricing, and public goods, including local public goods.

PUP author Angus Deaton wins the 2015 Nobel Prize in Economics

The Great EscapeCongratulations to Princeton Professor Angus Deaton from his proud publisher, Princeton University Press, on his 2015 Nobel Prize in Economics.  Deaton’s 2013 PUP book received admirable notices near and far, including this one by none other than Bill Gates: “If you want to learn about why human welfare overall has gone up so much over time, you should read The Great Escape: Health, Wealth, and the Origins of Inequality.”   We couldn’t agree more.

Peter J. Dougherty

From the Nobel committee, as reported in The New York Times:

“To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices,” the committee that awarded the prize said in a statement. “More than anyone else, Angus Deaton has enhanced this understanding. By linking detailed individual choices and aggregate outcomes, his research has helped transform the fields of microeconomics, macroeconomics and development economics.”

You can watch a Financial Times interview with Angus Deaton, where he discusses global inequality with John McDermott here.

Congratulations to Jean Tirole, recipient of 2014 Nobel Prize in Economic Science

Around this time last year the Press could not have been more excited. Why? Two of the three 2013 Nobel Prize in Economic Sciences awards went to PUP authors Lars Peter Hansen and Robert J. Shiller, authors of Robustness and Irrational Exuberance, respectively. To see just how excited we were, click here, here, or here. Amazingly enough, there was no shortage of excitement at the Press following this year’s announcement of the 2014 Nobel Prize in Economic Sciences award as Jean Tirole, author of Financial Crises, Liquidity, and the International Monetary System, The Theory of Corporate Finance, and co-author of Balancing the Banks: Global Lessons from the Financial Crisis, is the sole recipient.

“If we had more researchers like Jean Tirole it would be a very good thing for the world.”

The official Nobel Prize press release states Jean Tirole, head of economics at Toulouse University in France, won The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2014, “for his analysis of market power and regulation,” but this is just a fraction of the contribution he has made to economic theory and its real world implications. In an interview (which can be seen below) Chairman of the Committee for the Prize in Economic Sciences in Memory of Alfred Nobel, Tore Ellingsen, praised Tirole for his tireless efforts to better understand and explain how governments could regulate industries dominated by monopolies. When asked if it was difficult to choose a winner for the award this year, Ellingsen explained, “Yes and no. It’s been clear for some time now that Jean Tirole is a worthy recipient, but the question has been for what, alone or with whom, and when?” The interview concludes with wishful thinking; “If we had more researches like Jean Tirole it would be a very good thing for the world.”

Tirole has been an active member and contributor to economic theory since the 1980’s, and although “his work is largely theoretical…it has translated easily to practical use.” As a New York Times article further notes, “[Tirole’s] work is also wide ranging. A description of his influence published by the prize committee cited more than 60 papers, an unusually large number.”

Peter J. Dougherty, Director of Princeton University Press had the following to say about Tirole’s impact on the field of economics and his much deserved recognition. “Jean Tirole’s 2006 book, The Theory of Corporate Finance, marked an important moment in economics as well as in the history of Princeton’s economics list. We extend our most heartfelt congratulations to Professor Tirole on the occasion of his Nobel prize.”

Again, on behalf of all of us at PUP, we would like to congratulate and thank Jean Tirole for keeping the Nobel Prize in Economic Sciences award in house. And who knows, maybe next year we’ll be posting about a three-peat… fingers crossed!

Read this exclusive excerpt from the winners of the 2014 Nobel Prize in Physiology or Medicine

The 2014 Nobel Prize in Physiology or Medicine has gone to John O’Keefe, May-Britt Moser and Edvard I. Moser. To celebrate, we are offering a free excerpt from The Future of the Brain, a collection of cutting edge neuroscience articles edited by Gary Marcus. In “Understanding the Cortex through Grid Cells,” May-Britt Moser and Edvard I. Moser write:


One of the ultimate goals of neuroscience is to understand the mammalian cerebral cortex, the outermost sheet of neural tissue that covers the cerebral hemispheres. All mammalian brains have a cortex, but during evolution, the size of the cortex has expanded enormously, and in the largest brains the growth has resulted in extensive folding, with much of the cortical surface getting buried in deep grooves, or sulci and fissures. The cortex is the site where most cognition and intellectual activity takes place. Thinking, planning, reflection, and imagination depend on it. Memories are stored there, and the cortex takes care of language interpretation as well as language production. Moreover, although the cortex can be found across the whole range of mammalian species, the expansion of this brain structure is thought to underlie the amplification of the intellectual repertoire in humans.

Continue reading here:



Princeton University Press Nobelists

600px-NobelPrizeJust in case you haven’t heard, Robert J. Shiller, a professor at Yale University, has won the 2013 Nobel Prize in Economics along with Eugene Fama and Lars Peter Hansen. Both Shiller and Hansen have published books with Princeton University Press before, so we are specially excited about this news!

To read a little more about these authors and this incredible accomplishment, click here.

In honor of these amazing gentlemen, we’ve put together a list of all 48 of the Nobel Prize winners that the Press has published. Some of the highlights include Woodrow Wilson, former President of Princeton University and the 28th President of the United States, and Albert Einstein, who published more than 300 scientific papers throughout his astounding academic career.

S. Y. Agnon
George Akerlof
Philip W. Anderson
Kenneth Arrow
Robert J. Aumann
Baruch S.Blumberg
Robert Coetzee
Peter A. Diamond
Manfred Eigen
Albert Einstein
Robert Engle
Richard Feynman
Val L. Fitch
Milton Friedman
Clive W. J. Granger
Günter Grass
David J. Gross
François Jacob
Lars Peter Hansen
J. J. Heckman
William Arthur Lewis
Mario Llosa
Maurice Maeterlinck
Daniel L. McFadden
Hervé Moulin
John Nash
Douglass C. North
Elinor Ostrom
Luigi Pirandello
Christopher A. Pissarides
Edmund S. Phelps
Alvin E. Roth
Thomas J. Sargent
George Seferis
Amartya Sen
Lloyd S. Shapley
William F. Sharpe
Robert Shiller
Vernon Smith
Robert Solow
Michael Spence
Joseph Stiglitz
Wislawa Szymborksa
Hermann Wey
Eugene P. Wigner
Frank Wilczek
Woodrow Wilson

In the past three years alone, five authors published with the Press have won the Nobel Prize, all of which were for the Economic Sciences:

1) Robert J. Shiller is the best-selling author of Irrational Exuberance and The New Financial Order (both Princeton University Press titles), among other books. He is the Arthur M. Okun Professor of Economics at Yale University and a 2013 Nobel Prize winner.

2) Lars Peter Hansen is the David Rockefeller Distinguished Service Professor at the University of Chicago, where he is also the research director of the Becker Friedman Institute. He is a 2013 Nobel Prize winner. His most recent book, Recursive Models of Dynamic Linear Economies, was co-authored with Thomas J. Sargent, another Nobel laureate on this list.

3) Alvin E. Roth is the George Gund Professor of Economics and Business Administration in the Department of Economics at Harvard University, and in the Harvard Business School and the the Craig and Susan McCaw Professor of Economics at Stanford University. He won the Nobel Prize in 2012 and is the author of The Handbook of Experimental Economics.

4) Lloyd Stowell Shapley is a Professor Emeritus at UCLA, affiliated with departments of Mathematics and Economics. He won the Nobel Prize in 2012 “for the theory of stable allocations and the practice of market design.”

5) Thomas J. Sargent is professor of economics at New York University and a senior fellow at the Hoover Institution at Stanford University. His books include Rational Expectations and Inflation and The Conquest of American Inflation. Hansen and Sargent are the coauthors of Robustness. He was awarded the Nobel Prize in economics in 2011.

Nobel Prize Winner Robert Shiller on “The World at One”

Shiller_auAs you may have seen on our blog yesterday, Robert J. Shiller, a professor at Yale University, has won the 2013 Nobel Prize in Economics along with Eugene Fama and Lars Peter Hansen.

Shiller is the author of several PUP books, including Irrational Exuberance, The New Financial Order, The Subprime Solution, Animal Spirits, co-written with fellow Nobelist George Akerlof, and his most recent book,  Finance and the Good Society, which was published just last year.

Recently, Shiller was interviewed on “The World at One” about his Nobel Prize and about some of his books. The program can be found here and Shiller’s interview starts about 41 minutes in.

We’re sure this is just the first of many interviews for him and the other winners, so stay tuned!