American economists Robert E. Hall and Michael Woodford won the Nobel Memorial Prize in economics on Monday.

The Royal Swedish Academy of Sciences announced the award in Stockholm.

The committee said their work built the theoretical foundation for understanding how consumers decide whether to save or spend.

That helps policymakers stabilize economies after fluctuations.

Hall, 83, is affiliated with Stanford University.

Woodford, born in 1955, is affiliated with Columbia University.

Both men said the award was a surprise.

Hall said he had spent his career trying to understand how the economy works.

For decades, governments followed the Depression-era ideas of British economist John Maynard Keynes.

They cut interest rates and taxes and raised spending to restart growth.

But the stagflation of the 1970s, with high inflation and high unemployment at once, showed that formula was too simple.

Hall and Woodford improved the Keynesian model by studying how households and businesses actually make decisions.

Hall found that consumer spending depends on expectations of future income.

He also found that forecasting it is nearly impossible.

He found that about 80% of households based spending on future expectations, while the rest lived hand to mouth.

Woodford showed that businesses set prices based on where they expect interest rates to go.

He argued central banks should communicate clearly about their plans.

He also said they should raise interest rates to avoid uncontrolled inflation after supply shocks.