The economics prize was announced on Monday morning by Göran K. Hansson, secretary of the Royal Swedish Academy of Sciences.
Deaton, who holds both American and British citizenship, is a professor of economics and international affairs at Princeton.
His research focused on individual choices and their outcomes by answering three questions:
* How do consumers distribute their spending among different goods?
* How much of society's income is spent and how much is saved?
* How do we best measure and analyze welfare and poverty?
The answers to these queries, which Deaton studied for decades, can be used by the political and scientific communities to design economic policy that promotes welfare and reduces poverty.
"By emphasizing the links between individual consumption decisions and outcomes for the whole economy, his work has helped transform modern microeconomics, macroeconomics and development economics," the academy said in a statement.
Deaton was also honored for co-creating a system with John Muellbauer that estimated the demand for different goods, and for measuring living standards and poverty in developing countries with the help of household surveys.
For these efforts, he will receive a cash award worth about $978,000 and a medal.
Sveriges Riksbank, Sweden's central bank, established the economics sciences prize in 1968 to honor the memory of Alfred Nobel. Since then, the prize has been awarded to 75 laureates. Only one -- Elinor Ostrom -- has been a woman.
All of the Nobels will be handed out on Dec. 10, the anniversary of prize founder Alfred Nobel's death in 1896, The Associated Press reported.
More From Angus Deaton: