President Robert J. Zimmer (left) congratulates Nobel Prize winners Eugene Fama and Lars Peter Hansen (right). (Photo courtesy of University of Chicago)
Two University of Chicago faculty members were named recipients of the 2013 Nobel Prize in Economics.
The University of Chicago added two more names to its ever-growing list of Nobel Laureates on Oct. 14, bringing the total number of Nobel laureates associated with the University to 89. Eugene Fama, the Robert R. McCormick Distinguished Service Professor of Finance, and Lars Hansen, the David Rockefeller Distinguished Service Professor in Economics, Statistics and the College were named by the Royal Swedish Academy of Sciences as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2013 recipients, in addition to Robert Shiller of Yale University.
While the approach to economic theory by all three awardees differs, the Academy noted how each of their contributions played a role in understanding asset pricing and market behavior. According to a release by the Academy, "Their methods have become standard tools in academic research, and their insights provide guidance for the development of theory as well as for professional investment practice. Although we do not yet fully understand how asset prices are determined, the research of the Laureates has revealed a number of important regularities that are helping us to arrive at better explanations."
Eugene Fama received both his MBA and PhD from the University of Chicago GSB, and began his teaching career there in 1963. Fama is perhaps most well-known for his "efficient market hypothesis," which considers that market prices already reflect all applicable information and assumes rational investment behavior. Fama's work is credited with helping bring about the increased use of index funds. Fama is currently a member of the board for Dimensional Fund Advisors, and also teaches a PhD course, "Theory of Financial Decisions."
Lars Hansen has been on the University of Chicago faculty since 1981 and also is the research director for the Becker Friedman Institute for Research in Economics. Hansen's research interests could be considered more macro-based; he has explored the relationships among investor beliefs and attitudes with other ambiguities on market behavior, as well as how policy changes affect the economy. He has also developed a tool, "Generalized Method of Moments," that has gained wide acceptance in the economic community and been applied to various economic and financial models.
Fama and Hansen are in good company with Robert Shiller, who co-developed the popular Case-Shiller housing index, which was widely referenced during the 2008 financial crisis. Shiller is also well-known for his warnings just prior to the crisis, when he cautioned the financial community about the very real possibility of a housing crash and recession.
The University of Chicago celebrated the Laureates in mid-morning the day of the announcement, with a public event in the Harper Center Winter Garden. Fama and Larsen were recognized by university president Robert Zimmer for their contributions.
Fama put the spotlight back on the students, by noting how his teaching experience had shaped him: "I can't distinguish between students and colleagues. [Students] contribute to your work through their work, or through commenting on your work. There's a continuous exchange."
(Special thanks to Susie Allen and the University of Chicago Communications Department for their assistance with this article.)