Congratulations to Robert Shiller for winning this year’s Nobel prize for economics along with Eugene Fama and Lars Peter Hansen. The three share the prize for their individual contributions to the study of asset prices.
Shiller, whose work has focused on the impact of investor behavioural biases, and Fama, best known for his contention that markets are fundamentally rational, might seem unlikely bedfellows, but they have both been recognized for their groundbreaking contributions to the empirical study of asset price movements. Matthew Yglesias over at Slate has an excellent summary of the rationale for splitting the award between the three recipients.
Although he highlights the importance of psychological factors in price shifts, Shiller does not take a simple anti-market stance. Indeed, in a post for the Forum blog last month, he argues that in spite of the rush to regulate activities at financial firms in the aftermath of the economic crisis, policy-makers should be cautious about moving too quickly. Addressing accusations that finance is soaking up the best talent for “unproductive activities” he notes that though the criticism may have some basis in truth, the damage is difficult to quantify:
Speculative activities have plusses and minuses, much that is good and some that is bad, and these are very difficult to quantify. We need to be very careful about regulations that impinge on such activities, but we should not shy away from making regulations once we have clarity.
That said, on economic policy his views are rather more robust. He has lamented politicians’ habit of using the example of an individual household’s finances as a metaphor for an economy as a whole. Instead, he calls for “debt-friendly stimulus” to reduce debt by increasing output rather than trying to chase down a budget deficit.
In a conference call following the announcement, Shiller expressed “disbelief” at the news of the prize. Few of his colleagues will be quite as surprised.
Image: Robert Shiller, one of three American scientists who won the 2013 economics Nobel prize, poses at his home in New Haven, Connecticut October 14, 2013. REUTERS/Michelle McLoughlin