The University of Chicago has been associated with dozens of Nobel Prizes. But when CI Senior Fellow Lars Peter Hansen and Eugene Fama were awarded the 2013 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel last month, it was the first time since 1939 that two UChicago faculty have won the award simultaneously. To commemorate this historic honor, "The Work Behind the Prize" panel was held on November 4th at the Reva and David Logan Center for the Arts. The event was an opportunity for Hansen and Fama's peers in the Department of Economics and the Booth School of Business to pay tribute to the work that earned them the prestigious honor.
Hansen, a co-PI in the CI's Robust Center for Decision Making on Climate and Energy Policy, was credited by fellow Nobel laureate James Heckman with making path-breaking contributions in the field of econometrics, the union of theory, data and statistics that brought quantitative rigor to economic research. Heckman called Hansen's "Euler equation" the economics equivalent of E=MC2 -- an elegantly simple mathematical tool for understanding complex systems, in this case financial dynamics such as asset pricing and market risk.
"This is model science, science that's rooted in the Chicago tradition," Heckman said. "It doesn't dismiss economics, it goes ahead and extends it. It confronts the data, it doesn't avoid it. But then it goes forward and says what we can do next."
John Heaton of the Booth School saluted Hansen's "Generalized Method of Moments," which he summarized colloquially as "you can do something without having to do everything." When macroeconomists study the interesting "wobbles" of the financial markets, Heaton said they tend to try to model the entire economy, which can be impossibly complex. Hansen's groundbreaking papers in the 1980's showed that economists could make accurate and informative predictions about market features using only a few parameters.
(Photo by Robert Kozloff)
Below, you can watch the entire panel, including remarks from Hansen and Fama themselves on how the recent financial crisis affects interpretations of their work and economic research at large.