One said his prize money “collapsed”, while another invested his in a home improvement.
We are not talking about lottery winners, but Nobel laureates in economics.
This year’s winner, the founding father of behavioral economics, Richard Thaler, joked on Monday that he would spend his roughly $ 1.1 million in prizes in the most “irrational” way possible, referring to his research on how human weaknesses affect financial decisions.
Which got us at MarketWatch thinking: What have previous Nobel Laureate economists done with their money?
Some of the laureates study barely decipherable (to non-economists) topics such as “search for frictionBut their choices when it comes to their Nobel Prizes reveal a more relatable side.
“He went to the bank and, as my former Irish professor used to say, he fell apart,” said Christopher Pissarides, 2010 laureate, who studies labor markets at the London School of Economics and shares the prize with Peter Diamond and Dale Mortensen. . He won for his work in analyzing markets with research frictions.
Pissarides put his roughly $ 330,000 in earnings into his “regular” bank account and splurged on clothes and travel expenses for his entire family to accompany him to. Nobel Week in Stockholm, he told MarketWatch.
Another part of the money was spent on “lavish furniture” in a newly purchased apartment at the time. Some of the winnings were in an account in his native Cyprus, so they may have gotten a ‘good haircut’, as many Cypriot accounts did, during the 2013 banking crisis, he noted.
Similarly, 2013 winner Robert Shiller – the Shiller behind the S&P CoreLogic Case-Shiller Home Price Index – told MarketWatch that his earnings of around $ 400,000 were “gone, more with. we”.
“A good chunk of that went to all the friends and relatives I invited to come with me to Stockholm,” said Shiller. “I had 16 guests there, and [my wife] and I promised to pay most of their travel expenses. We wanted it to be a bonding event, for all of these people. In the four years since, we have also made donations to various charities.
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Shiller’s co-honored Eugene Fama also donated his earnings – to his own employer. Fama presented his check to the Booth School of Business at the University of Chicago, where Thaler also teaches. “I wouldn’t have won it without all the great colleagues I have had over the years,” Fama said.
Engle said it was easy to decide what to do with his money. He and his wife used it for a down payment on a “beautiful country house” in the Hudson Valley. “It’s a quiet place to think, get away from the city and be creative,” said Engle, who won in 2003 with Clive Granger for his work on “Methods of Analysis of Economic Time Series with Time Variable Volatility (ARCH).”
Last year’s winner, contract theory scholar Oliver Hart, said he saved his prize. When asked if he had any advice for Thaler on how to spend his winnings, he replied, “I wouldn’t assume to give him advice because although Thaler is known for his behavioral work irrational (of others), I have the feeling that he himself is very rational.
See also: Opinion: 12 Things You Can Learn About Investing From Nobel Laureate Richard Thaler
Macroeconomist Edward Prescott joked that he and his wife were “generous” people, so “they gave half of the money. [roughly $500,000] reward governments in the form of taxes. “
“The company has been kind to me,” said Prescott, who shared the 2004 Nobel Prize with Finn Kydland and divides his working life between the Federal Reserve Bank of Minnesota and Arizona State University. “I love what I do, being an ASU teacher and part-time central banker. I take great joy when there is a breakthrough in aggregate economic theory that solves an empirical puzzle or expands the theory so that it can address problems that aggregate theory could not previously solve.
He added, “I have neither the time nor the energy to consume as much as standard microeconomic theory says.”
Formerly known as the Sveriges Riksbank Prize in Economics in Memory of Alfred Nobel, the prize was not in the original categories of the Nobel Prize and was first awarded in 1969.
And don’t forget the taxes …
Until 1986, the IRS did not tax Nobel Prizes, because recipients were selected for the honor “without any action” on their own, meaning they did not apply to be chosen for it. But the rules have since changed and typically around 40% of Nobel Prizes go to the federal government, and some could go to state governments as well, depending on where the winner lives, said Bill Bischoff, columnist for MarketWatch’s Tax Guy. .
However, if a recipient donates all of their Nobel windfall to charity, they are not taxed at all.
That’s why 2002 winner Vernon L. Smith donated his half of the earnings (which he shared with behavioral economist Daniel Kahneman) to the International Foundation for Research in Experimental Economics, a non-profit organization he founded. “I had the great pleasure of paying no tax on it,” Smith said.