The application of microeconomic tools in the service of easing poverty has taken another step forward with the awarding of this year’s Nobel Prize in Economics to Angus Deaton. “In essence this is applied economics at its finest,” said Torsten Persson, the economics prize committee secretary.

Professor Deaton’s Elsevier publications demonstrate his wide interests. In high visibility journals such as the Journal of Econometrics and Social Science & Medicine and in the Handbooks in Economics, he has taken part in “transforming development economics from a field that used to be largely theoretical and based on crude national accounts data to a flourishing field largely based on micro or individual data,” according to Professor Persson.

Mr. Deaton’s award comes as members of the United Nations set new development objectives for 2030 to succeed the Millennium Development Goals established in 2000 and which included eight antipoverty targets to be achieved by this year.

Read on for more information reprinted from materials provided by Nobel Foundation.

The Royal Swedish Academy of Sciences has decided to award The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2015 to Angus Deaton, Princeton University, NJ, USA, “for his analysis of consumption, poverty, and welfare.”

**Consumption, great and small**

To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices. More than anyone else, Angus Deaton has enhanced this understanding. By linking detailed individual choices and aggregate outcomes, his research has helped transform the fields of microeconomics, macroeconomics, and development economics.

The work for which Deaton is now being honored revolves around three central questions:

*How do consumers distribute their spending among different goods? *Answering this question is not only necessary for explaining and forecasting actual consumption patterns, but also crucial in evaluating how policy reforms, like changes in consumption taxes, affect the welfare of different groups. In his early work around 1980, Deaton developed the Almost Ideal Demand System — a flexible, yet simple, way of estimating how the demand for each good depends on the prices of all goods and on individual incomes. His approach and its later modifications are now standard tools, both in academia and in practical policy evaluation.

*How much of society’s income is spent and how much is saved?* To explain capital formation and the magnitudes of business cycles, it is necessary to understand the interplay between income and consumption over time. In a few papers around 1990, Deaton showed that the prevailing consumption theory could not explain the actual relationships if the starting point was aggregate income and consumption. Instead, one should sum up how individuals adapt their own consumption to their individual income, which fluctuates in a very different way to aggregate income. This research clearly demonstrated why the analysis of individual data is key to untangling the patterns we see in aggregate data, an approach that has since become widely adopted in modern macroeconomics.

*How do we best measure and analyze welfare and poverty?* In his more recent research, Deaton highlights how reliable measures of individual household consumption levels can be used to discern mechanisms behind economic development. His research has uncovered important pitfalls when comparing the extent of poverty across time and place. It has also exemplified how the clever use of household data may shed light on such issues as the relationships between income and calorie intake, and the extent of gender discrimination within the family. Deaton’s focus on household surveys has helped transform development economics from a theoretical field based on aggregate data to an empirical field based on detailed individual data.

**Angus Deaton**, UK and US citizen. Born 1945 in Edinburgh, UK. Ph.D. 1974 from University of Cambridge, UK. Professor of Economics and International Affairs, Princeton University, NJ, USA, since 1983.

**Story Source:**

The above post is reprinted from materials provided by **Nobel Foundation**. *Note: Materials may be edited for content and length.*

** Handbooks in Economics Series: **The Handbooks in Economics are deeply rooted in this non-doctrinaire approach to economic research. Nobel laureate Kenneth Arrow, a Stanford economics professor, co-founded the Handbooks in Economics in 1983. They provide the various branches of economics with handbooks which are definitive reference sources, suitable for use by professional researchers, advanced graduate students, or by those seeking a teaching supplement.

Angus Deaton is a contributor to two articles in the *Handbook in Economics Series* including:

Demand analysis*, Handbook of Econometrics*

Data and econometric tools for development analysis, *Handbook of Development Economics*

Stephen is Professor of Mathematical Sciences at the University of Leicester (UK). He is currently Head of Actuarial Science in the Department of Mathematics, and also Head of the Thermofluids Research Group in the Department of Engineering. These two distinct responsibilities reflect his background and achievements in both actuarial science education and fluid mechanics research. Stephen is a Fellow of the Royal Aeronautical Society, the highest grade attainable in the world’s foremost aerospace institution.

Professor Garrett’s new book, *Introduction to Actuarial and Financial Mathematical Methods*, provides a complete course of self-study for students of actuarial science and financial mathematics. It covers the subjects most often needed by non-mathematics graduates, such as fundamental calculus, linear algebra, probability, and basic numerical methods.

The easily-understandable text features examples, motivations, and lots of practice from a large number of end-of-chapter questions. For readers with diverse backgrounds entering programs of the Institute and Faculty of Actuaries, the Society of Actuaries, and the CFA Institute, Introduction to Actuarial and Mathematical Methods can provide a consistency of mathematical knowledge from the outset.

Stephen also is the author of another book, *An Introduction to the Mathematics of Finance: A Deterministic Approach**, *now in its second edition. It offers a highly illustrated introduction to mathematical finance, with a special emphasis on interest rates. This revision of the McCutcheon-Scott classic follows the core subjects covered by the first professional exam required of UK actuaries, the CT1 exam. It realigns the table of contents with the CT1 exam and includes sample questions from past exams of both The Actuarial Profession and the CFA Institute. With a wealth of solved problems and interesting applications, An Introduction to the Mathematics of Finance stands alone in its ability to address the needs of its primary target audience, the actuarial student.

If you are interested in purchasing a copy of either *Introduction to Actuarial and Financial Mathematical Methods* or *An Introduction to the Mathematics of Finance: A Deterministic Approach, Second Edition*, visit the Elsevier Store. Apply discount code STC315 to receive up to 30% off the list price and free global shipping.

Economies around the world are taking on new shapes and identities. How can we prepare ourselves to make financial and economic sense of recent financial crises, terrorism, ultra-low interest rates that are decades-long, “debt-prone” countries, and countries with large trade surpluses?

Our first step in preparing for the future is to know the mathematics of finance. For beginner we recommend *Risk-Neutral Pricing and Financial Mathematics: A Primer* by Peter M. Knopf and John L. Teall. It provides a foundation to financial mathematics for those whose undergraduate quantitative preparation does not extend beyond calculus, statistics, and linear math. It covers a broad range of foundation topics related to financial modeling, including probability, discrete and continuous time and space valuation, stochastic processes, equivalent martingales, option pricing, and term structure models, along with related valuation and hedging technique.

Also for beginners is Stephen Garrett’s *Introduction to Actuarial and Financial Mathematical Methods.* It is a self-contained module for independent study, covering subjects most often needed by non-mathematics graduates such as fundamental calculus, linear algebra, probability, and basic numerical methods. Its easily-understandable text features examples, motivations, and lots of practice from a large number of end-of-chapter questions.

More advanced students can profit from *Intermediate Financial Theory, 3 ^{rd} edition* by Jean-Pierre Danthine and John B. Donaldson. Depth, rigor, and practicality are the greatest assets of this book for beginning Masters’ students. New subjects and pedagogical materials introduce readers to the large set of issues and concepts familiar to all advanced practitioners; the new edition contains 65% new and revised material.

More sophisticated still is the 3^{rd} edition of *Principles of Financial Engineering* by the late Salih Neftci. Revised and expanded by Robert Kosowski, it teaches the practicalities of the financial markets, not their theories; it is fundamentally practical. This new edition contains more pedagogical elements, such as solutions, case studies, spreadsheets, sample exams, and slides. Don’t forget Salih Neftci’s classic *Introduction to the Mathematics of Financial Derivatives, 3rd edition *by Ali Hirsa. Popular with readers because it emphasizes intuition and common sense, it is the only “introductory” text that can appeal to people outside the mathematics and physics communities as it explains the hows and whys of practical finance problems.

Changing financial conditions require access to background information. *The Handbook of Asian Finance, *edited by David Lee and Greg N. Gregoriou, includes two volumes that chart Asia’s miraculous recovery from the 1997. The first volume, *Real Estate and Wealth,* describes the unexpected transformations that marked Asia’s economies and financial sectors. Volume 2, Financial Markets and Wealth Management, investigates the reasons many Asian countries are growing above 6%, with double-digit growth for a year or two in-between. Complementing this extensive research collection is *The Economics of Sustainable Development: Risk, Resources, and Governance*, edited by Arsenio Balisacan, Ujjayant Chakravorty, and Majah-Leah Ravago.

These 27 articles lay down the foundations of sustainable development in a way that facilitates effective policy design. The editors mix broad thematic papers with focused micro papers, balancing theories with policy designs. This rich source of information should appeal to any institution involved in development work and to development practitioners grappling with an array of on-the-ground developmental challenges.

Two other reference works illuminate recent changes in electronic marketplaces. *The Handbook of Digital Currency, *edited by David Lee, presents a comprehensive view of this newly developing subject and includes history, technicality, IT, finance, economics, legal, tax, and regulatory environments. For those who come from different backgrounds with different questions in mind, *The Handbook of Digital Currency* is an essential starting point. *The Handbook of High Frequency Trading*, edited by Greg N. Gregoriou, looks beyond mathematical models, which are the subject of most HFT books, to the mechanics of the marketplace. In 25 chapters, researchers probe the intricate nature of high frequency market dynamics, market structure, back-office processes, and regulation. It appeals to students and professionals who want more than discussions on the econometrics of the modelling process.

Two new textbooks cover rapidly evolving fields. Kenneth Rogoff says of Cristina Terra’s *Principles of International Finance and Open Economy Macroeconomics: Theories, Applications, and Policies*, “this superb intermediate international macroeconomics textbook fills an important void by providing analysis that is more mathematically rigorous than standard mass market texts, yet remains quite accessible to both advanced undergraduates and first year graduate students.” Her macroeconomic framework provides a basis for understanding and analyzing the global economy from the perspectives of emerging economies and developing countries.

*Public Finance: A Normative Theory, Third Edition* by Richard W. Tresch remains the premier textbook on the normative theory of government policy, with the *Third Edition* propelling into the 21st century its examination of what government ought to be doing instead of what it is doing. With four new chapters and other significant revisions, it presents detailed and comprehensive coverage of theoretical literature, empirical work, environmental issues, social insurance, behavioral economics, and international tax issues. “This is the ideal graduate treatment of public economic theory,” says Stephen Ross. “Tresch introduces a general equilibrium model and uses it to solve the classic problems.”

Finally, two titles provide answers to thorny business problems. In a small number of pages*, Navigating the Business Loan: Guides for Lenders, Small Business Owners, and Entrepreneurs* by Morton Glantz teaches readers how to apply modern, quantitative, analytical methods to problems of credit risk. Its “how-to,” practical and systematical guide to credit analysis draws upon case studies and online tools, such as videos, Excel spreadsheets, and PowerPoint slides in providing a concise introduction. Jason Scharfman’s *Hedge Fund Governance: Evaluating Oversight, Independence, and Conflicts*, describes the tools needed for developing a flexible, comprehensive hedge fund governance analysis framework. Case studies and interviews with professional fund directors shine a bright light of pragmatism on this framework. Scharfman’s global analysis of more than 5,000 hedge fund governance structures enables him to draw realistic conclusions about best practices.

The tools for succeeding in the future are already in our hands. With the help of these books, financial well-being is within grasp.

**About the Editor:**

Scott Bentley Ph.D. is Senior Acquisition Editor at Elsevier, based in San Diego. He began acquiring textbooks, monographs, handbooks, and encyclopedias for Academic Press/Harcourt Brace in 1994, signing the first finance books, including Neftci’s “An Introduction to the Mathematics of Financial Derivatives” and DePamphilis’ “Mergers, Acquisitions, and Other Restructuring Activities.” He initiated and signed encyclopedias on subjects as diverse as applied ethics, biodiversity, nationalism, archaeology, and social measurement. He also managed economics and finance journals. Since Elsevier acquired AP/BH in 2000, he has focused his work on building the economics and finance book programs, especially the Handbooks in Economics, edited by Nobel laureate Kenneth Arrow and Michael Woodford. The finance textbooks, monographs, and handbooks include best-sellers such as *Principles of Project Finance*, *Intermediate Financial Theory*, and *Principles of Financial Engineering*.