Your Majesties, Your Royal Highnesses, Your Excellencies, Ladies and Gentlemen,

I want to begin by observing that scientific research is a communal activity and that neither Bengt Holmström nor I could have won this prize without the help of many others. We had the crucial support of our teachers, co-authors, students, and family members, some of whom are here tonight. We are enormously grateful to them.

Bengt Holmström’s connection to Sweden is well-known – he is a Swedish-speaking Finn. Mine is less well known, but it is still very important. Part of my family is Danish and my mother’s brother, together with his daughter, my cousin, were among those who escaped to Sweden in the famous boatlift of Danish Jews in 1943. Without Sweden’s willingness to accept refugees this part of my family would not have survived.

My cousin is here tonight as one of my guests.

At a troubled time in the world, this is a reminder of how important it can be for a country to open its doors to those suffering from persecution.

I became an economist for rather unusual reasons. I graduated with a degree in mathematics in 1969. This was in the midst of student revolutions and the idea of getting a real job seemed unattractive. The answer, of course, was further study. But in what? People told me that mathematics was being applied to economics, and I also had a second reason for choosing that field. I used to like to argue about politics, but I found that my fellow-debaters at some stage raised an issue like the balance of payments and at this point I lost the argument.

I decided that I had to learn something about this subject!

After 47 years working in the area, I have learned that economics is both more and less powerful than people think. It is more powerful because it provides an indispensable set of tools for understanding human behavior. Whether we are talking about an individual’s decision about how much education to get, a firm’s decision about how much to invest, or a society’s decision about how best to tackle global warming, economics can provide an invaluable perspective. In the context of the current prize my co-laureate and I have shown that economics can throw light on whether teachers should be rewarded according to their students’ test scores; or whether prisons should be run by private companies or by the government.

This is the good news about economics. It can help us to understand many things. The bad news is that it is not the whole story. For understanding many questions other things matter too: psychology, history, sociology, politics. This is the sense in which economics is less powerful than people think. It provides only part of the answer.

With the award of this prize I know that people will listen to Bengt and me in a way that they never did before. I hope that, as we promote the insights of economics, we always remember that other voices need to be heard too.

Let me close by thanking those who have bestowed this amazing honor on the two of us. Bengt and I are deeply grateful.

Thank you.