2 U. of C. profs share Nobel in economics
BY STEFANO ESPOSITO Staff Reporter October 14, 2013 7:08AM
Updated: November 16, 2013 6:09AM
As the news began to spread across the University of Chicago on Monday morning, some students in Eugene Fama’s 9 a.m. class wondered if the revered professor of economics would actually show up.
Fama showed up five minutes early, graciously accepted the round of applause and the standing ovation and then got right back to teaching.
“If you didn’t tell me, I’d have no idea he’d just won one of the biggest prizes in the whole world,” said Harrison Chan, one of Fama’s students in an economics class.
Fama was one of two humble U. of C. giants in the financial academic world to learn they’d won the Nobel prize for economics.
In fact, Fama, 74, said he questioned if he would ever win the award.
“People have talked about it for a long time, but so many people can win it,” said Fama after the Royal Swedish Academy of Sciences announced Fama and fellow U. of C. Professor Lars Peter Hansen had won this year’s prize, along with Robert Shiller, a Yale University professor. “You put a low probability on it. So when it happens, it’s a surprise.”
A crowd of hundreds filled the floor and gallery of the U. of C. Booth School of Business’ Harper Center atrium Monday morning, greeting Fama and Hansen with thunderous applause and a standing ovation.
“As the chairman of the Department of Economics, I must proclaim that today is a great day for Chicago economics,” declared Prof. John List.
Fama described himself as “thrilled,” particularly because he’s sharing the honor with his colleague at the U. of C.
The phone rarely stopped ringing in the Fama home Monday morning. Fama initially couldn’t talk to a Chicago Sun-Times reporter because he’d taken a moment to brush his teeth.
“We called all our kids and all our relatives and all our friends,” said Fama’s wife, Sallyanna Fama. “It’s just a big shock for us. It’s been years that we expected to win and haven’t — and we gave up.”
Fama, Hansen and Shiller won the Nobel prize for economics for developing new methods to study trends in asset markets.
The academy said that through their separate research, the three had laid the foundation of the current understanding of asset prices.
While it’s hard to predict whether stock or bond prices will go up or down in the short term, it’s possible to foresee movements over periods of three years or longer, the academy said.
“These findings, which might seem surprising and contradictory, were made and analyzed by this year’s laureates,” the academy said.
Like Fama, Hansen said he was both delighted and surprised at Monday’s news.
“It’s an interesting way to start the day — very wonderful news,” said Hansen, a faculty member since 1981. “We’re still processing all of this.”
Hansen said he’d heard his name mentioned in the past in connection with the prize, but he said he didn’t expect to actually be among the winners.
Before Monday’s announcement, Hansen was expecting a “quiet day at work,” with a student workshop later in the day.
“But I guess it’s not going to be that way,” Hansen said.
Other than attending Monday’s event at Booth, Fama had no immediate plans for Monday.
“I’m hoping I’ll have a life left,” he joked.
In addition to Hansen and Fama, the U. of C. has four current faculty members who have won the Nobel prize for economics. Twenty-eight people associated with U. of C. have now won the economics prize.
Shiller, an economist famous for having warned against bubbles in technology stocks and housing, said he reacted with “disbelief” when he received the telephone call from the academy early Monday.
“A lot of people have told me they hoped I would win it, but I’m aware there are so many other worthy people that I had discounted it, so I would say no, I did not expect it,” he told reporters in Stockholm by telephone.
Starting in the 1960s, Fama and others showed how difficult it is to predict stock prices in the short run, findings which changed market practice, for example with the emergence of index funds, the academy said.
Two decades later, Shiller showed that there is more predictability in the long run in stock and bond markets, while Hansen developed a statistical method to test theories of asset pricing.
“These are three very different kinds of people and the thing that unites them all is asset pricing,” says David Warsh, who tracks academic economists on his Economic Principals blog.
American researchers have dominated the economics awards in recent years; the last time there was no American among the winners was in 1999.
The Nobel committees have now announced all six of the annual $1.2 million awards for 2013.
The economics award is not a Nobel Prize in the same sense as the medicine, chemistry, physics, literature and peace prizes, which were created by Swedish industrialist Alfred Nobel in 1895. Sweden’s central bank added the economics prize in 1968 as a memorial to Nobel.
All awards will be presented to the winners amid royal pageantry on Dec. 10, the anniversary of Nobel’s death in 1896.