Why the Nobel Prize is Overrated

Do the names Max von Laue, Heike Kamerlingh Onnes, or Nils Gustaf Dalén ring a bell? No. How about Wilhelm Wien or Johannes Diderik van der Waals? Still nothing? What about Gabriel Lippmann or Charles Glover Barkla?

I’ll help you out. They’re all people who won the Nobel Prize in Physics between 1905 and 1921. People whom the Swedish Royal Academy deemed to have made the most important contributions to physics in the 15 years after Albert Einstein discovered the special theory of relativity.

In 1916, eleven years after Einstein discovered special relativity, and the year after the then-famous Einstein discovered general relativity, when Einstein was a member of the prestigious Prussian Academy of Sciences, the Swedish Royal Academy decided that nobody in the world was worthy of the Nobel Prize in Physics, and thus made no award that year.

Eventually, in 1921, only after considerable logrolling and handwringing, the Nobel Prize committee begrudgingly awarded the prize to the most important theoretical physicist of all time, 16 years after his annus mirabilis. Even then, Einstein received the award, not for the discovery of special or general relativity, but rather, “for his services to Theoretical Physics, and especially for his discovery of the law of the photoelectric effect.” The photoelectric effect? Even in 1921, long after the theory of relativity become canon in the theoretical physics community, the committee refused to acknowledge the importance or legitimacy of relativity.

The award that is synonymous with recognition of extraordinary intellectual achievement, never recognized what might be the most important intellectual achievement of the 20th century.

Whenever you hear someone measure the quality or value of something, you should keep top of mind concept of Wittgenstein’s Ruler, which, says, according to Nassim Taleb, “Unless you have confidence in the ruler’s reliability, if you use a ruler to measure a table you may also be using the table to measure the ruler.” My preferred articulation of Wittgenstein’s Ruler is this: Most people’s observations say more about the person (or group of persons) doing the observing than what’s being observed.

The Nobel Prize in Physics reveals more about the biases of the Swedish Royal Academy from 1905 to 1920 than it does about the actual achievements of the best physicists throughout that time. The committee was plagued by the strain of anti-Jewish sentiment that was brewing in Europe during that era. Many on the committee harbored distaste for theoretical physics. And, finally, most of the committee hadn’t yet been able to wrap their heads around the profundity of relativity.

The Swedish Royal Academy was biased against Jews and theoretical physics. And most of them weren’t smart enough to get relativity. And so lesser minds won the prize. It was only when the prestige of Albert Einstein began to exceed the prestige of the Nobel Prize itself that they finally gave the man his due.

17083401791_b6edf2c586_hPhoto courtesy Trudeau family

The same is true of the Oscars or the Emmys or any other prestigious award. At the time I’m writing this, the #OscarsSoWhite scandal has highlighted this same phenomenon as I’m illustrating with the Nobel. 94 percent of Oscar voters are white, 76 percent are men, and the average age is 63. And so the award winners reflect these biases.

And this doesn’t take into consideration the enormous bias in favor of American movies. All movies made in all languages other than English have to compete for one award! That’s a serious hurdle for the 95% of the world’s population for whom something other than English is their first language.

None of this is to understate the prestige of these awards, or the potential impact they have on someone’s career. It’s simply to say that any award is always going to reflect more the biases of those who decide on the award than the a priori qualifications of the candidates that the award purports to measure.

Lest you think the Nobel Prize’s biases are all in the past, I will provide a modern-day example of a person whom I think is deserving of an award, but will never receive one, because of the obvious biases of the selectors.

I believe that Bill McBride, brainchild of the blog Calculated Risk, should win the Nobel Prize in economics. Here’s why: Mr. McBride is the greatest Superforecaster the modern world of economics has known. He predicted the 2007-2009 economic crisis, not in broad or sweeping terms, or in vague or uncertain terms, but down to the very month. Then, in 2009, he predicted that the housing market and the economy would begin to recover, again, down to the very month. Since then, while many other economic pundits, Nobel-Prize winners, and other less-informed speculators have predicted a recession post crisis, he has continued to remain steadfast in his belief that the United States economy will continue to grow. And he has explained the bases for his positions in detail on his blog every day. He’s been blogging for eleven years now, and he’s been right about the economy in powerful micro-detail almost without exception the entire time.

Economics is the study of markets and the economy. Here we have, right in front of us, a man who has consistently been correct about the progress of markets, in perfect granular detail, disclosing his methods, in plain view, for eleven years. Nobel-prize winning economist Paul Krugman has called the site, “my go-to site on housing matters.”

Yet he will never even be considered for the prize. Why? Because he doesn’t have a prestigious Ph.D in economics, and he doesn’t write about economic theory. Instead, he writes about the economy in practice, in daily, granular detail. This is a difficult, tedious, painstaking process. But it is not prestigious in a way that the modern consensus of economics Ph.D. recognizes. McBride has a background in economics, but he’s not an academic. He has an MBA from UC Irvine and is a retired senior executive at a public company. Maybe he could have gone to Princeton and got a Ph.D. in economics, but he chose a different life path.

Still, if his consistent insights into the economy are more useful, accurate, and insightful than any other economist, shouldn’t he at least be considered for the prize?

Economists have won the Nobel Prize for explaining why markets cannot be predicted, and a few Nobel-Prize-winning economists have won the prize despite making market predictions that were so bad they nearly caused the entire world economy to collapse, but it doesn’t matter if Bill McBride predicts every world economic trend from now until the end of time, he will never win the Nobel Prize. He probably won’t ever receive a single vote. Why? Because just as the Nobel committee of 1910 had a bias against theoretical physics, the Nobel committee of 2016 has a bias in favor of theoretical economics. And the Nobel committee will always have a bias in favor of people who already have society’s stamp of prestige and approval. Just as the Nobel committee wasn’t eager to bestow the award on patent clerk, we shouldn’t hold our breath for them to give it to a retired executive and a blogger. If there is one thing economists and the Royal Academy understand and believe, it’s in the concept of signaling. All candidates already need the trappings of prestige before we can consider them worthy the highest and most prestigious award. The Nobel Prize is therefore a confirmatory exercise, not a revelatory one.

The Nobel Prize reflects the consensus prestige-Groupthink of the Swedish Royal Academy, and like any other award, it’s a confirmation of those biases. And that is why the Nobel Prize is very much overrated.