Shiller wins Nobel Prize in Economics

Sterling Professor of Economics Robert Shiller phoned his brother Monday morning to ask if he had heard the news.

His brother said, “Sure — the Tigers lost.” But that wasn’t exactly what Shiller had in mind.

Shiller had just won the Nobel Prize in Economics, an award that he, along with Eugene Fama and Lars Peter Hansen of the University of Chicago, earned for their “empirical analysis of asset prices.” Shiller’s Nobel is Yale’s second in one week, as biology professor James Rothman ’71 received the Nobel Prize in Medicine last Monday.

In a press conference with Shiller this week, University President Peter Salovey said, “It’s not every day that we can do this. Just every Monday.”

Shiller founded the field of behavioral finance, which crosses psychology with economics to examine fluctuations in stock prices, said School of Management Dean Ted Snyder. Shiller’s research in the field famously led him to predict both the Internet stock bubbles of the 1990s and the housing bubble of the 2000s.

“Unlike many ‘gurus of doom,’ Shiller has sound theoretical and empirical foundations behind his claims,” economics professor Giuessepe Moscarini said in an email to the News.

Still, some economics commentators have expressed surprise in national media outlets that Shiller and Fama received the award together, as the two economists’ findings seem to be contradictory. While Fama’s theory, known as the “efficient market hypothesis,” claimed that investors efficiently incorporate information into their investing decisions, Shiller found that irrational behavior influenced the market more than Fama’s theory had suggested.

Dirk Bergemann, chair of the economics department, said Shiller’s empirical research built on the more theoretical framework that Fama had provided. Though Fama formulated the theory of efficient financial markets, Bergemann said Shiller showed that Fama’s theory “wasn’t rich enough” and did not account for important factors.

“[It’s] more an evolution of a theory than a contradiction,” Bergemann said.

Bergemann said Shiller faced “strong attacks” from proponents of Fama’s hypothesis for the first 10 or 15 years that Shiller advocated behavioral finance.

A joint Nobel Prize is “actually a nice resolution” to the debate, he said.

The award comes during a particularly exciting run for Yale economists. On Oct. 9, President Obama tapped Janet Yellen PHD ’71 to chair the Federal Reserve. In a few months, the School of Management — at which Shiller has a dual appointment — will relocate to the newly constructed 242,000-square-foot Edward P. Evans Hall.

Professors and graduate students interviewed said the economics department has long anticipated that Shiller would win the Nobel Prize.

“If anything, it was overdue,” Moscarini said.

While Yale administrators have not traditionally accompanied Yale laureates to the December prize ceremony in Stockholm, Salovey told the News that this year might be different. Given that the University has two prizewinners, administrators might join the laureates at the ceremony, he said.

Echoing his inaugural address, Salovey said the interdisciplinary nature of Shiller’s field of behavioral economics reflects “a theme around which we can promote a more unified Yale.”

Reflecting on the practical impact of his research, Shiller said the field of finance is often misunderstood. Rather than the study of making money, he said finance is in fact “the story of human activity at large.” Looking ahead, Shiller resolved to continue using his research in finance to promote social welfare.

“The most important problem we are facing today is inequality,” he said.

Shiller is scheduled to teach the introductory macroeconomics lecture in the spring semester.

“Nothing could [better] represent what we are trying to accomplish here at Yale,” Salovey said. “Brilliant research and excellence in teaching are not opposite sides of a coin.”

Shiller began teaching at Yale in 1982.

Correction: Oct. 15

A previous version of this article News misrepresented the intentions of former staff reporter Diana Li ’15. Her name has been removed from the story.

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