The invisible hand, of the Nobel kind

Prizes like Nobel arise out of a particular failure of markets. The price mechanism fails because value of fundamental research can't be determined till decades after it has been conducted. Patents as a price mechanism serve a limited purpose because they apply to commercially viable incremental research. This distorts the market away from foundational work required for subsequent innovation. The prize provides an incentive before the event for researchers to make the investment in paradigm-changing activity. To achieve this outcome, a prize must be designed properly. Science Nobel retains its preeminent status as its jurors have managed this better than committees judging other trophies, some of which even consider metrics as bizarre as 'cultural values'.

But by no means is it perfect. The key risk is to award work less than outstanding. The Nobel Committee avoids this by waiting long for validation. This creates a bias in favour of past consensus rather than rewarding current research. It introduces its own distortion by clustering research around institutionally acceptable parameters. The winner-takes-all approach - a Nobel Prize is typically shared by max 3 persons - fails to address the collaborative nature of modern research that depends on inputs from hundreds. Then there is the co-option of winners as gatekeepers, affecting the course of future research.

As an economic signal, Nobel is weaker than patents, where the market assigns value to research. Yet, to get around a market failure, the prize leads to its own set of market failures. Research is channelled into defined pathways instead of being more interdisciplinary. Certification of research introduces biases among policymakers, universities and the public about what constitutes 'monumental work'. This leaves a vast body of research unverified. To its credit, Nobel's not designed to provide a hierarchy of research. Peer review does a better job overall, even without the prize money and tux dinner in Stockholm.