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 to save or spend.

That helps policymakers stabilize economies after ups and downs.

Hall is 83 and works with Stanford University.

Woodford was born in 1955 and works 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 showed that formula was too simple.

At that time, inflation and unemployment were both high.

Hall and Woodford improved the Keynesian model.

They studied 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.

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.