Why so many?


Last week Booth professor Gene Fama was awarded the Nobel Prize in Economics (he shared it with Lars Hansen, also from the University of Chicago, and Robert Shiller of Yale). Congratulations Gene! (Here is John Cochrane's excellent summary of Fama's work.)

Chicago is famous for the many professors who have received Nobels in Economics. Last week brought the number that I took classes from to 7. Nearly 40% of all Economics laureates spent part of their career at Chicago (6 are on the faculty now).

It is easy to copy ideas and methods. Many schools use the same methods to develop their faculty, yet few are as influential in economics and finance as Chicago. Why is that?

One factor is probably scale. Having a large number of great economists already at a university makes it easier to attract additional strong faculty. The University of Chicago has two of the greatest economics groups in the world - one in the Department of Economics, and one in Chicago Booth. It also has great economists at the Harris School of Public Policy, the Law School, and at other institutions on campus.

I suspect that the most important answer is culture. A distinctive culture permeates the entire university - not just the research faculty, but the graduate students, undergraduates, and professional school students. Even the University's Laboratory School (which my son attended), which has classes from nursery school through high school, has a similar culture.

That culture is one in which we love ideas. We love ideas that are provocative, but well thought out. Ones that make us stop and think, and even if they don't change our views, they force us to think through our views more carefully. Our culture is also one in which rigorous and data-driven debate is expected, encouraged, and rewarded.

Perhaps the best manifestation of this is faculty research workshops. In these professors (including visitors from all over the world) present their newest research in unfinished form. Participants don't sit quietly and politely. Chicago workshops are famous (infamous?) for tough audiences that ask challenging questions and expect good answers. I've given workshops at many leading universities, and no audience is tougher. However - and this is crucial - the audience is expected to be respectful, constructive, and not personal. The speaker is expected to not act defensively, but to embrace the tough questions and welcome the input that is likely to improve his or her research.

Professors take that culture into our classrooms. The professors I was fortunate to learn from at Chicago were thought provoking, challenging, tough, but constructive. They encouraged students to think critically, and to debate each other and the professor rigorously and respectfully. Chicago Booth's Executive MBA classes have exactly that same culture, and it imparts a particularly kind of education. I see it all the time in our alumni, who love to think about deep questions, like to puzzle things out, are not afraid to ask difficult questions, and expect logic and evidence.

Gene Fama is a superb example of the Chicago culture - which should not be surprising, since this is his 50th year on our faculty, and he also earned his PhD at Chicago Booth. For example, two years ago while speaking to our Executive MBA students he stated that he did not believe in financial "bubbles." He is often criticized for saying this, especially after the recent financial crisis. However, his critics rarely try to understand what he is saying. What Gene is trying to do is treat the topic of "bubbles" rigorously. He seeks a clear definition of a bubble, and a theory for why one might arise. That definition and theory should be testable with data. Until someone develops a replicable investment strategy that makes abnormal returns from "bubbles," I am very sympathetic with what he is trying to do.

Gene's work has evolved over his 50 year career - John Cochrane's summary linked above gives a good sense of that. He responded to challenges of other economists (including co-laureate Shiller) and to new evidence not by digging in, but by revising his ideas, collecting new data, and doing new statistical analyses. Because of this his influence is only stronger, and our knowledge greater. He personifies the University's slogan: crescat scientia; vita excolatur (let knowledge grow from more to more; and so be human life enriched).

Mike Gibbs