8:59 p.m. | Updated
Even those charged with identifying the world’s greatest geniuses sometimes make bad investment decisions.
On Monday the Nobel Foundation, which bestows the world’s most prestigious academic, literary and humanitarian prizes, said it was reducing the cash awarded with Nobel Prizes by about 20 percent. Each prize, awarded in Swedish kronor, will now be worth about $1.1 million, down from $1.4 million.
The reduction was the result of ugly returns on its invested capital, which was valued at $419 million as of Dec. 31, down 8 percent from the previous year. In the last decade, the costs of the prizes and related operating expenses have exceeded the endowment’s average annual return.
“The Nobel Foundation is responsible for ensuring that the prize sum can be maintained at a high level in the long term,” Lars Heikensten, the foundation’s executive director, said in a statement. “We have made the assessment that it is important to implement necessary measures in good time.”
The endowment is currently invested in about 50 percent equities, 20 percent fixed-income investments and 30 percent alternative assets, a spokeswoman said. A committee was recently established to help determine how to reallocate the portfolio, and administrative costs are also being cut.
Monday’s announcement introduced the first reduction in the face value of the prize since 1949. (In inflation-adjusted terms, though, the prize has fluctuated greatly over the years.)
The Nobel Memorial Prize in Economic Science — technically not one of the original prizes — is also being scaled back. Now that the potential income reward has fallen, will economists be less motivated to win it?
“At the time you’re doing your work you’re not exactly striving for the Nobel Prize, but to make a contribution, make your name, maybe make tenure,” said Dale T. Mortensen, an economics professor at Northwestern University who received the prize in 2010. “The Nobel is a great honor that comes much later in life. The money itself is a windfall. It probably wouldn’t matter what the amount is, although it’s nice to have.”
Peter A. Diamond, a professor emeritus at the Massachusetts Institute of Technology who also received the Nobel in economic science in 2010, observed that over the long run, cutting the cash award could dilute the prize’s prestige.
But he added that Monday’s news overstates the financial blow to future laureates. “One of the things that comes with the prize, besides the prestige and the money,” he said, “is the opportunities to make more money.”
Here’s a chart showing the prize in any given year as a percent of the first prize awarded in 1901, after adjusting for inflation:
Source: Nobel FoundationAn earlier version of this post misstated the last year in which the face value of the prizes was reduced. It was 1949, not 1963.