How Does Economics Affect Our Lives?

Economists like Guido W. Imbens, a Nobel Prize winner, make decisions that affect every aspect of our lives. 

We don’t always realize it, but economists play a key role in our everyday lives. They help elected officials determine the best ways to lower poverty rates, forecast the need for goods and services, and fund new roads and bridges.

To learn more about this crucial work, I spoke with Guido W. Imbens, a Dutch American economist. Imbens teaches at the Graduate School of Business at Stanford University. In 2021, he shared the Nobel Prize in Economic Sciences with Joshua Angrist, an Israeli American economist at the Massachusetts Institute of Technology. 

Imbens uses data from the real world to find outcomes for experiments that can’t be run for a variety of reasons. For example, lawmakers may want to understand how additional years of education contribute to financial success. But they can’t prevent one group of children from going to school in order to test their theories. That’s where Imbens and economists like him can help. They use mathematical methods to draw conclusions about how best to implement policies that affect all of us.  

Below are highlights from my conversation with Imbens, which has been edited for brevity and clarity.

Munveer meets up with Imbens in California. 

Can you tell me a little bit about yourself and how you became interested in economics?

I grew up in the Netherlands, in a town in the south called Eindhoven. It’s close to the Belgian and German borders. I went to college in Rotterdam. There, I studied econometrics, which is a combination of math and economics.

My teacher gave me a book on economics by Jan Tinbergen, who shared the first Nobel Prize in Economic Sciences in 1969. Tinbergen was also from the Netherlands. I found the book very interesting. I wanted to do something related to math but not pure math, and economics checked all the boxes for me.

What was it like when you learned that you had won a Nobel Prize?

It felt incredible. I got to experience it with my family. I got a call at 2:08 a.m., which I missed, and then again at 2:13 a.m. The second time, I saw it was a Swedish number. [The Nobel Foundation is headquartered in Sweden.] My wife and I stared at each other for a moment. We were all very excited. My kids made breakfast for the entire Stanford University film crew, who were there with us. 

A Nobel Prize is the most prestigious award a scientist can receive.

Can you describe your work for our readers?

A big challenge in economics is that often we can’t do experiments. We’re interested in advising policymakers about the impact of various policies, but we’re unable to do experiments in many cases due to ethical or other reasons.

For example, during drug trials, pharmaceutical companies do a randomized experiment where they select two different groups and see how the drug affects each group. But in many cases, we can’t do that in economics. For example, the United States government and Social Security System might be interested in understanding the effects of a universal income and whether it would create an incentive for people not to work. For obvious reasons, the government can’t tell a group of people that they get a free salary, while another group doesn’t.

Through my research, we found a close alternative. I got data from the Massachusetts Lottery about people who got a lottery payout of $25,000 annually over the course of 20 years. We were able to study how the winnings affected behavior. We saw that the people who won worked a little less, and some of them retired a little earlier. But there wasn’t a big effect. So you would learn that if we had a universal basic income, it might not greatly affect the labor supply [the number of people willing to work].

In one of your interviews, you said, “The challenge is coming up with a good question.” What are some of the most interesting questions in economics today? 

There are a lot of questions about climate change and how the economy is going to be impacted. Humans over history have shown that they’re very good at adapting. So figuring out what the government can do to ensure that communities are going to be flexible and ready to adapt to the new challenge is very interesting. 

What advice do you have for students who are interested in economics?

As a child, I was very interested in chess. It taught me to think hard and really dig deep into problems. I learned to find a time that is free of distractions. It’s important to focus, dig deep, and put in a lot of effort.