The 2013 Nobel Prize in Economic Sciences was awarded last month to professors Eugene Fama and Lars Peter Hansen from the University of Chicago, and Robert Schiller from Yale University “for their empirical analysis of asset prices.” While there is general agreement that these three economists are most deserving of the prize, quite a few were also surprised that Fama and Schiller shared the award because they hold such different views of their discipline.
Professor Fama is the father of the efficient market theory, which says that prices in financial markets reflect all available information. He has long maintained that he does not understand what people mean by financial bubbles and is thus not sure if they actually exist. He is associated with the Chicago School of Economics, which believes that people generally make rational choices about their financial interests.
Professor Schiller, one of the fathers of behavioral economics, holds very different views. He believes that individual and crowd psychology strongly influence the behavior of markets and that social and emotional factors have a strong influence on the economic decisions made by individuals and institutions. In 2000 Schiller published Irrational Exuberance, a book about the dot-com bubble, which he updated in 2005 to cover the housing bubble.