If you win a Nobel Prize, you get a cash prize of approximately $1.5 million. The size of that prize relates to how well the foundation that manages Alfred Nobel’s endowment has fared. According to the Financial Times, during the 1990s the payout increased each year. More recently, prize amounts have been frozen because of a plunge in the fund’s value.
When he created the endowment in 1895, Alfred Nobel specified that its assets should be invested in “safe securities”. The Times says that today, the fund is apportioned among global stocks, fixed income, and alternative investments that include hedge funds. The fund’s executive director said that in the future, additional attention would be given to “risk control”.
When economist Robert Lucas won his Nobel Prize in 1995, half was given to his ex-wife Rita. As stated in their 1988 settlement, “‘wife shall receive 50 percent of any Nobel Prize.’ The clause expired on October 31, 1995.” Albert Einstein’s Nobel money also had to go to an ex-wife because of their divorce settlement.
Talking about the cash prize, Elinor Ostrom, the first and only woman to become an economic Nobel laureate (and she is a political scientist) said that she donated it to fund research at the Indiana University Foundation.
Winners Robert Mundell and Gary Becker were concerned about exchange rates. Expecting the euro would appreciate against the dollar, Mundell first converted his kronor to euros. Gary Becker postponed collecting his prize as he sought to buy futures to protect its value against the dollar. Before he completed the transaction, a Swedish currency crisis diminished the value of the prize from $1.2 million to $900,000.
Chemistry winner Martin Chalfie, a Columbia professor, pointed out that an international prize used to be tax free. Now, though, as he expressed it, “50 percent of it immediately went to the city, the state, and the federal government. The rest of it is going to help put my daughter through college.”
The Economic Lesson
Just like the price of a dress, the “price” of foreign currency can fluctuate in response to demand and supply. Because the Nobel Prize money is paid in Swedish currency, exchange rates affect its size.