The Crystal Ball of the Economy

Everyone wants to leave a mark. Yet we often leave traces behind without even thinking about them. Every decision leaves a mark and has an impact on the wider world around us. A new refrigerator in our kitchen is something we can see directly, but the decision to buy it—and the process of making that purchase happen—sets waves of money and goods in motion.

According to one theory, the gentle flutter of a butterfly’s wings can influence events on a global scale, changing the course of the future.

Sometimes, however, we can see for ourselves that our presence matters. We appear in records and statistical data, and our activities can bring about change, even in long-established ideas and theories.

The decisions of every participant in the economy affect others, whether we are talking about a passer-by buying a bread roll or the founder of a multibillion-forint bakery. These effects are difficult to model, and they can change rapidly when new information emerges.

This is something we can observe when following the work of the economists awarded the 2026 Nobel Memorial Prize in Economic Sciences.

This year, American economists Robert E. Hall and Michael Woodford received the prestigious award.

According to the official citation, they were recognised for developing the microeconomic foundations of macroeconomic stabilisation.

Put more simply, their work has contributed to the development of models designed to help moderate economic booms and downturns.

This article does not aim to provide a technical account of the laureates’ work. Laura Gáti’s article on the European Central Bank’s website offers a more detailed explanation; the link is included in the references at the end.

Instead, I would like to share the thoughts their work has prompted in me.

Perhaps the key lies here: our decisions are usually shaped by what we know about past events, and they often contain a degree of faith that previous experience can be projected into the future.

The future behaviour of economic participants is difficult to predict. Yet the decisions and investments of politicians, businesses and financial institutions depend, among other things, on how they assess consumers’ future decisions and their consequences.

But let us return to the laureates. When I think about the work of scientists, I am always reminded first of the legend of Archimedes and the success that supposedly followed a sudden moment of insight.

Science, however, is far removed from that image. Decades of painstaking work and the recognition of connections between individual findings can gradually produce a broader picture that helps improve our everyday lives. In this case, it helps us understand how decisions are formed and how individual decisions combine to create a complex system of effects.

We have previously discussed how familiar economic indicators do not necessarily reflect the true state of an economy when considered in isolation.

The work of this year’s laureates draws attention to the same issue and takes the discussion further.

The theoretical framework they developed can help economic participants recognise how individual, micro-level decisions affect the economy at the macro level.

The model also reminds us that the economy is not static. We cannot simply sit back. We must continuously follow the emergence of new information and the ways decisions influence one another, assessing the results through feedback and ongoing review.

We live in a constantly changing, almost organic system. Individual and family decisions, the actions of small and large businesses, and government regulations all shape the environment. This continual change makes planning for the future even more difficult.

The model developed by the laureates is not reality itself. It is a tool that helps us understand present conditions and the possibilities that may lie ahead.

It also shows that relationships derived from past experience do not always remain reliable in every situation.

When a central bank cuts interest rates, cheaper borrowing may lead to an increase in consumption and investment.

But what happens if most families are already committed to repaying long-term mortgages? What if previous negative experiences and problems in the mortgage market encourage them to build up savings in case they encounter difficulties making repayments? And what if, as winter approaches, they put money aside for utility bills rather than spending more on other goods?

Perhaps this is where we reach one of the challenges of economic modelling. Once family decisions are taken into account, the number of different behaviours and circumstances that need to be considered increases considerably. The diversity of households makes it difficult to predict every response accurately.

Businesses also have very different room for manoeuvre. The options available to a large corporation cannot simply be equated with those of a small business.

Companies face different economic shocks. What happens, for example, when a product that once held a leading market position suddenly loses ground? Consider the competition between Novo Nordisk and Eli Lilly, which illustrates how quickly market positions can change in the pharmaceutical industry.

Economic policy, too, does not always follow purely economic considerations. A country is not a company, and political decision-makers pursue other objectives as well. These may sometimes conflict with corporate interests and market incentives.

To sum up, we have previously written about how models describing economic relationships can become increasingly complex and incorporate ever larger amounts of data. Comparing and interpreting that data properly, while continuously reviewing the conclusions drawn from it, can help us build a more accurate picture of an economy.

The work of this year’s Nobel laureates in economic sciences may bring experts closer to understanding how changes can be used to draw conclusions about their possible future effects.

Yet we must acknowledge that there is still no infallible crystal ball capable of showing us the future with precision. As sceptical people, we might not even accept the predictions of such a crystal ball without reservations.

The future is difficult to see clearly, and that is not necessarily a bad thing. It allows us to preserve our optimism and mobilise our creative energies.

By: Viktor Szentkiralyi

References

• Laura Gáti, European Central Bank: Article on the 2026 economics prize
• Royal Swedish Academy of Sciences: The 2026 Prize in Economic Sciences

English translation: Galatea – an LLM-based digital assistant.