Chris Pissarides shares his thoughts on the 2013 recipients of the Nobel prize in economics. He himself was awarded the Nobel prize in economics in 2010 for his work on job search frictions.
This year’s Nobel prize is bold and in my view an exciting choice. It shows that the Swedish Academy is prepared to make decisions that may not prove too popular and this is good for the profession. Of course, the reason that I say this is that the award is about finance and the predictability of prices. In the last five years we have been suffering from our failure to master asset prices! Prior to that, we lived through the Great Moderation, when we thought we had mastered them. Before the financial crisis, the majority of economists would probably have favoured a Prize for Eugene Fama, the inventor of efficient market theory (admittedly, shared with Kenneth French, his co-author in the original paper – but the Prize cannot be given to more than three people at a time). After 2008, most thought that Fama missed his chance and that Robert Shiller should get it instead, for exposing irrationality and market failure. And of course, econometric estimation has played an important role in all this, because theory without evidence to support it is not worth the paper it is written on. How interesting that the Swedish Academy took the long view, and shared it among the main proponents of efficient market theory, its failings and their econometric testing. Indeed, one cannot talk about asset prices today without reference to at least one of the three winners, and probably to all three. Finance research in the last four decades has been completely dominated by their research. No doubt those who still adhere to efficient market theory will criticize the award to Shiller and those who totally rejected efficient market theory (I would think the majority of non-specialists at present) would be very critical of the award to Fama. But they have both been extremely influential in the profession and beyond, and along with Lars Peter Hansen, deserve the recognition.
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Sir Christopher Pissarides is Regius Professor of economics at the LSE, and has been a cornerstone of life at the CEP since its foundation in 1990 and for many years led the research programme on macroeconomics, particularly unemployment. He was co-recipient with Peter Diamond and Dale Mortensen of the 2010 Nobel Prize in Economics, ‘for their analysis of markets with search frictions’
