This week, Professor Angus Deaton of Princeton University was awarded the Nobel Prize in Economics for his work in improving economic policy making through bottom-up analysis of individual consumption.
As the Swedish academy stated, Deaton developed a system for estimating how demand for each good depends on the prices for all goods and on individual incomes. Deaton’s system is now a standard tool for research and in practical policy evaluation.
In a way, Deaton’s prize is a victory of analytics.
According to a Reuters article, he has pioneered the use of household survey data, especially data on consumption, to measure living standards and poverty.
Deaton’s breakthrough comes from analyzing individual consumption patterns, rather than strata of earned income, to better understand households living in poverty. This approach relies on a bottom-up analysis of individual data, rather than a top-down theoretical model of how households in poverty behave.
A better understanding of poverty, in turn, leads to new and improve methods for economic development to alleviate poverty.
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