The Nobel prize for physics this year was controversial. It wasn’t controversial because of the idea ‘wot won it’ but the number of people who contributed to that idea. However, the Nobel prize has a rule that there can be at most three recipients in a given year. (That doesn’t apply to Peace but it does to the others). As this BBC report outlines, that left a few claimants and at least one entire organisation (CERN) out in the cold for all that kudos.
So should teams be awarded Nobel prizes? The Royal Society took a look and decided that individuals matter more. Here is Paul Nurse (and if you don’t know who he is listen to this wonderful Moth talk):
“When you are on the platform and you are shaking hands with the King of Sweden and the cameras are all on you, you would not be able to recognise Cern. If there were 20 of you, it would lose the kudos of the one, two or three people that are actually there,” according to Prof Nurse.
Now I don’t think what he means here is that it is a problem of organising a royal audience. Instead, he actually believes that the prize should be awarded to people sparingly so that it means more.
The interesting question is why. If an entire organization wins a Nobel prize that would be a cause for celebration of that organization but is it likely to pit organization against organization in a race to win a Nobel? Regardless of what you think about that outcome, I suspect that it won’t. It was the discovery itself that mattered and allowed CERN to procure the millions required to build machines to test the Higgs et.al. theory. The Nobel doesn’t seem to add to incentives in any meaningful way. Acknowledgement is already there.
By contrast, let’s consider individuals. In this particular case, it seems that the three who won were, in fact, the pioneers while others were very significant follow-on researchers. This is not to denigrate following on. It is that activity that pulled the pieces together to give value to the entire program. They were just as essential. They just weren’t the first step.
The incentives here are more problematic. Award only the pioneers and the followers don’t have an incentive to follow. In that case, neither them nor the pioneers get anything. Award the followers at the exclusion of the pioneers and perhaps the reverse is true. Either way, there is a real difficulty here if the number of researchers whose creativity generates a piece of knowledge is increasing. The Nobel committee is forced to make hard calls but those calls appear incompatible with the incentives. That said, a clever committee could award the prizes in successive years to make up for this. The interesting question is why they don’t. Is it because there is always another idea with a smaller team that should receive an award above a follow-on team and they can’t commit to it?
That commitment problem could be solved. For instance, the cap of three per year could be extended to allow borrowing. The Nobel committee could award the prize to six people in one year and be prevented from awarding a prize in the next year. Or, alternatively, it could move to a set of prizes every two or three years but with a bigger cap. The cap of three is tied to the yearly award not necessarily to the overall value of the prize in terms of the ‘stock of recipients.’
In summary, I think there is a growing issue here but it is one that could be accommodated without undermining the value of the system or, for that matter, tiring out the hand of the King of Sweden.
Digitopoly 
I guess one example of such room for manoeuvre for the Nobel committee may be the Nobel Prize for Gerard ‘t Hooft, joint with Veltman in 1999, for proving that gauge field theories are renormalizable. This 1999 physics prize was said to have cleared the way for the 2004 prize for demonstrating asymptotic freedom in the strong interaction, for which there were really four contenders: apart from Gross, Wilczek and Politzer, who received the 2004 prize, ‘t Hooft was strongly involved in the development of that theory as well.
Really, you have to try to keep in mind that people’s behavior and motivation can differ greatly from the classic, simple for tractability, utility functions ubiquitous in economics. And this can be hard for someone who’s lived and breathed getting published in economics journals for decades (no offense intended, sorry).
By making the prize all for one, or a max of three people, it’s like the lotto in some ways. The vast majority knows it’s super unlikely, but it’s fun and exciting to dream, and it’s exciting to see the big winners. This can make the field more exciting and fun, and for the few hundred at the top, I suspect when they’re young at least, it is motivating to dream of maybe winning someday. Even if the odds are 1/100, this is not insignificant for something this awesome; it’s a very real motivation.
And having a super-prize makes superstars, and makes the field more glamorous, and so more exciting and interesting to the general public, so they’re more likely to study it, or go into it, to make the effort to go into it.
The glamour factor, the dream factor, these are important motivators.
Now, that’s the pros; there is the serious con that you’re recognizing teams less. And as someone who’s been in science, you find out just how amazingly science is from enormous joint effort, and how little advancement ever comes from just one person, even the most talented. The one guy eureka thing is just so false, or in the movie Iron Man, where Tony Stark singlehandedly invents these amazing robot suits and ultra power sources.
That eureka moment is almost always the final piece only possible after massive incremental effort by thousands, and really millions, over years and years. And Newton knew this very well, and admitted it, with his shoulders of giants quote. So teams, and the aggregated contributions of many many people, are so crucial, and it is very important to recognize this.
It might be best to have separate team and individual prestige awards, like in sports, the NBA champion team, the player of the year, the defensive player of the year, and so on.