Americans Share Nobel in Economics

Posted by Kevin G. Hall on October 14, 2013 

Call in an American sweep in economics. Three American economists — two from the University of Chicago and one from Yale University — will share the 2012 Nobel Prize in Economics.

The Royal Swedish Academy of Sciences announced Monday that the prestigious award went to Eugene Fama and Lars Peter Hansen of University of Chicago and Yale's Robert Shiller for their years of work, separately, in researching what determines the price of assets such as stocks and bonds.

While the two Chicago economists aren't well known outside of strict economic circles, Shiller is somewhat of a household name. The closely followed Case Shiller Home Price Index, used to major changes in home prices in major metropolitan areas, bears his surname.

Fama's "efficient-market theory" launched study into asset prices in the 1960's, and holds that when markets are operating without distortions they reflect the true value of assets.

Shiller's research comes to a different conclusion, that human psychology creates the so-called animal spirits that drive market behavior and occasionally lead to asset bubbles that cause prices to be out of whack with fundamentals. He famously coined the term Irrational Exuberance in a popular book in 2000 that predicted the bursting of the bubble for tech stocks a year later.

The housing collapse in 2008 and its aftermath made Shiller's work seem prescient and in 2009, he received accolades for co-authoring a book entitled Animal Spirits: How Human Psychology Drives the Economy. It was written with George Akerlof, now a fellow laureate, who may soon best be known for being the husband of Janet Yellen, the Obama administration's nominee to head the Federal Reserve.

Shiller's research is varied as is evident on his Yale homepage, found here.   


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