Nobel Prize in Economics awarded for analysis of poverty and welfare

"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," the Academy said in its press release.

Deaton highlighted how reliable measures of individual household consumption levels can be used to discern mechanisms behind economic development, the report notes.

"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," the Academy said.

The 69-year-old laureate's research "has focused on health in both rich and poor countries, as well as on measuring poverty in India and around the world."

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, as noted in the report.

In 2010, Angus Deaton was the co-author of the study, which looked into the existence of a direct interrelation between financial situation and a feeling of happiness, in the sense of "satisfaction you feel about the way your life is going."

The study says that no matter how much more than $75,000 people make, they don't report any greater degree of happiness, but the lower a person's annual income falls below that benchmark, the unhappier he or she feels.

Researchers found that lower income did not cause sadness itself but made people feel more ground down by the problems they already had.

The study doesn't say why $75,000 is the benchmark, but "it does seem to me a plausible number at which people would think money is not an issue," says Deaton. At that level, people probably have enough expendable cash to do things that make them feel good, like going out with friends.

Annual prizes for achievements in physics, chemistry, medicine, peace and literature were established in the will of Alfred Nobel, the Swedish inventor of dynamite, who died in 1896. The prize in economic sciences was added by Sweden's central bank in 1968.