MEDIA CONTACT: Charles R. Loebbaka at c-loebbaka@northwestern.edu or (847) 491-4887

Two Receive $125,000 Nemmers Prizes

March 12, 2002

EVANSTON, Ill. — Northwestern University today (March 12) announced the winners of two prestigious awards in the fields of economics and mathematics.

Dr. Edward Prescott, Regnts’ Professor in the University of Minnesota’s economics department and economic adviser to the Federal Reserve Bank of Minneapolis, has been named the recipient of the Erwin Plein Nemmers Prize in Economics. Dr. Yakov G. Sinai, professor of mathematics at Princeton University, has received the Frederic Esser Nemmers Prize in Mathematics. Both prizes carry stipends of $125,000.

Edward Prescott

Prescott’s work has focused on business cycles and economic fluctuations. He has demonstrated that standard growth behavior historically studied by microeconomists also can explain business cycle fluctuations that macroeconomists have sought to understand. His theory that a substantial part of business cycles are simply the best response of the economy to policy changes that affect the economy’s productivity is widely accepted in the field of economics.

"We’ve learned that small fluctuations are not a problem, that the economy is behaving as well as it can, and that we should focus on the bigger picture," said Prescott. "Temporary depressions should not drive us to adopt bad policies that will adversely affect the economy over the long term."

"I believe the government has begun to grasp this new economic understanding. For example, thoughtful cost-benefit analyses are becoming the norm, reducing the amount of abrupt policy shifting we’ve seen in the past," said Prescott.

Prescott’s work also has focused on the importance of an organization’s ability and willingness to commit to specific policies over the long term. Prescott argues that people put their trust in organizations -- including government and corporations -- because they believe those organizations will deliver on their commitments. Failure to follow through on commitments would make people unwilling to invest in those organizations in the future.

This line of reasoning has been considered crucial in the development of central banks that can act independently and maintain credibility in the marketplace.

Dr. Nancy Stokey, a University of Chicago professor of economics and a member of the Nemmers selection committee, said that Prescott was awarded the prize for his influential role in changing the direction of macroeconomics. "The greatest real-world impact of Prescott’s work comes as a result of his analysis of the time inconsistency of optimal policy. His work, which shows how important it is for a central bank to operate as an independent body, has influenced the way monetary policy is conducted in many countries."

Another selection committee member, University of California Los Angeles professor of economics Dr. David K. Levine, said, "On the central bank front, the government is a little bit like a dieter: there’s always a temptation to cheat a little by printing some extra money now, but always the knowledge that the government or dieter would regret doing so in the long run. Giving responsibility to an independent central bank is a commitment device: it makes it possible for the government to avoid cheating, and more important - everyone knows it."

Yakov G. Sinai

Sinai’s work deals with measuring dynamical systems, or systems that change over time, such as weather, the motion of planets and economic systems. These systems can be accurately measured in the short term (short term being relative to the issue at hand); but when analyzed in the long term, the systems are difficult to understand and predict.

Sinai was the first to come up with a mathematical foundation for determining the number that defines the complexity of a given dynamical system. His mathematical system is called Kolmogorov-Sinai entropy.

"The concept of entropy enables us to measure random and chaotic behavior in systems," said Sinai. "There are many real-world applications—weather, the stock market, and even social sciences."

"There are precise solutions to these equations for very short periods of time," said Dr. Zhihong Jeff Xia, a professor of mathematics at Northwestern University and a member of the Nemmers selection committee. "But if you want to look at long-term behavior, like weather for the next five days to a week, then the system becomes very complicated. This is when we see something called chaos."

"Kolmogorov-Sinai entropy measures complexity, which is the first step. Then comes finding patterns. Even though a system is complex, there are always patterns—you just need to look at it the right way. Sinai was the first one to recognize and study these patterns," said Xia.

About the Nemmers Prizes

"It is a privilege for Northwestern to recognize these scholars," said Northwestern University President Henry S. Bienen. "Their work has helped to shed light on important issues in mathematics and economics that ultimately have relevance to all of us."

The Nemmers Prizes are awarded to scholars who display outstanding achievement in their discipline as demonstrated by major contributions to new knowledge or the development of significant new modes of analysis. Initiated in 1994, they are made possible through bequests from the late Erwin E. Nemmers, a former member of the Northwestern University faculty, and his brother, the late Frederic E. Nemmers, both of Milwaukee. The prizes are awarded every other year.

For more information, please visit: http://www.northwestern.edu/provost/awards/nem.html.