The Nobel Puzzle

Ladbrokes gives Eugene Fama the best odds for winning the economics Nobel.  Thus, if Fama wins he will have deserved to have won and if Fama loses he will not have deserved to have won.  The Nobel committee cannot go wrong no matter what it does!  Think about it.


Hmm. If Fama wins, wouldn't he likely share the prize with French. With Fama at 2-to-1 and French at 6-to-1, is there a nice, hedged trade here?

French starting working with Fama long after Fama had done his best work.

Fama is best known for the efficient market hypothesis, which has come under a bit of disrepute recently. That would make him an odd choice.

His work with French was a nice step forward from CAPM (or fine tuning, as some suggest).

Therefore, I'd regard F-F as more likely than just Fama.

Here's my stab at Alex's point:
Fama has the best odds, so if he wins, you can make a case that the markets were right (Efficient Markets Hypothesis worked). But also, the field is the favorite relative to Fama, so if Fama loses, you could also make a case that the EMH applied.

Dave, I believe it's more: if Fama wins for saying markets are right, then the betting markets were right, so his theory worked. If he loses, the betting markets were wrong, so deserved to lose, because his theory did not work.

Not true. Odds for Fama were the highest in past years, so he has been already disproved.

No, my money is on Weitzman-Nordhaus for several environmental economics contributions including the imperfect but important "green GDP" and "green accounting" work. It would also be a feel-good prize in a year when economics is not a particularly liked field.

It's surprising that Fama hasn't already won it. Just look at the discussion above. People seem to suggest that he could win it for 2 accomplishments - ECMH and Fama-French.

Who else can boast two separate Nobel worthy accomplishments? Historically, probably just a handful of winners.

@Fusion - you're probably right... and nicely done to alex as well.

For those who want a bit more of the list, Mankiw has posted the leaders (50/1 or better).

Ah, yes. Fusion got it.

I meant Weitzman, of course. ;)

My money's on Shiller. (1) He's the anti-Fama (at least as far as ECMH). (2) His name has been all over the news in the last year, as people talk up the Case-Shiller index. I'm not saying Krugman won because he was in the Times twice a week, but it can't hurt to get your name out there.

Gotta short Romer at 4-1. Seriously.

This post is the wittiest thing I have read in some time.

Fama doesn't deserve it.

His work on EMH & three-factor model has practically been discredited.

It would ironic to award the prize to a guy who was claiming there was housing bubble as on November 2007. (

When does the committee actually vote on this? What if the committee sees the odds, thinks the same way as Alex T, then decides not to award the prize to Fama because, as good Scandanavians, they don't want to add any evidence for the EMH? If betting markets take this into account, (which they should, if they are efficient) this would drive down the odds on Fama to the point where the committee might be able to give Fama the prize. This would drive the price back up. Is there a stable equilibrium here?

So I guess the Nobel Committee has in its power to disprove the efficient market hypothesis?

>"You can ALWAYS say, regardless of the outcome, that the probabilities were a priori correct."

Ah, but, Mr. C., I was not saying that the probabilities were necessarily a priori correct. I was simply saying that even if the favorite loses, that is NOT sufficient evidence to show that the probabilities were *not* correct.

The theory is falsifiable, but you need to look at the markets over a longer period of time. If you were to find that (for instance) 9:1 longshots did not actually win approximately 10% of the time, that would be evidence against the theory.

"I like the Austrian economist Ernst Fehr's work (absolutely not related to so-called 'Austrian Economics')"

Even less so: Fehr is Swiss (or at least, works in Z├╝rick).

They definitely hasn't thought much about the odds. Holmstrom was 50:1 (see Mankiw's blog). As soon as I have seen it wanted to place a bet but Ladbrokes closed it. Today the odds are 8:1.

Well, whatever the committee's decision is, I'm sure it will perfectly reflect all available information about the state of the economics profession.

The record of the past several years of all these prediction markets
for Nobel economics prizes has been utterly disastrous and way off.
Even worse than last year was the year before. There were vague
mentions here and there of Hurwicz or Maskin, but Myerson was not
anybody's radar screen publicly, although one of the world's leading
game theorists had told me privately a year earlier that "Roger
Myerson will get the next Nobel given for game theory" (although
officially it was given for mechanism design).

Looking at the top ten, I think that for obvious reasons that somehow
escape those participating in this market, Fama-French and Barro are
near zero probabilities this year. I have here and over on Econospeak
called for environmental to be the most likely field, with behavioral
finance the second, and every other way behind. That would say that
out of that top ten, Nordhaus, Weitzman, and "Schiller" (Friedrich,
perhaps? The people running this market clearly should have been
candidates for the literature Nobel...), are probably higher
probability than their posted odds. The others are all likely at
some point, although this is probably not their year, but their
probabilities may not be too far off.

I also would say Williamson is underrated. If it goes to either or
both Holmstrom or Tirole, Williamson is a likely co-recipient. It is
a hard, if obscure, fact that he is the most cited economist of all time.

BTW, neither of these are likely to be the outcome, but my desired
combo for environment would be Chichilnisky-Uzawa-Weitzman, with the
first two of those not on the list. I think Nordhaus is overrated,
but then an overrated person got it last year. For behavioral finance
my desired set would be Mandelbrot-Shiller-Thaler.

I think Julio H. G. Olivera deserves a Nobel :

1-For his reformulation of the Economic Theory in terms of generalized functions.
2-For his seminal contribution in the field of structural inflation.
3-For his seminal contribution in the field of economic cycles in planned economies.
4-And many, many other contributions.


Ah, playing esoteric with us, eh? Olivera's most cited paper is his 1970 one in the JPE on "Passive
Money." So, he does a nice job at looking at exogenous vs endogenous money, with hints of rational
expectations. It has been cited 51 times, most prominently in a 1975 paper by Sargent and Wallace that
itself has been cited 1068 times. Ben McCallum also has liked to cite this paper. His next most, at
least in the English language, was one one optimal international reserves in 1969, also in the JPE,
cited 37 times, mostly by people most would not have heard of in papers that themselves have not been
much cited.

In the Spanish language literature his most admired work has been that on his, as you put it, "reformulation
of economic theory in terms of generalized functions." In particular, he used Schwartz distributions,
which allow for a stochastic formulation. Nice, but I would say that Mandelbrot's introduction of
various more generalized probability distributions that allow for the analysis of fat-tailed phenomena
is far more important. Not even close. The rest of what you mention is pretty pedestrian.

And, for that matter, should anybody be getting the prize this year for anything having to do with
helping to formulate rational expectations? Another year, maybe with Sargent, who is more deserving
than either Barro or Fama in my book.

Regarding a prize for anything having to do with planned economies, the obvious candidate for years
has been Janos Kornai. I could see him sharing one with Tullock and Krueger for rent seeking, given
that the "soft budget constraint" is actually closely related conceptually to it (although I am unaware
of anybody besides myself making this observation). Certainly the soft budget constraint has been
very relevant in this past year of massive bailouts within capitalist economies. Rent seeking anyone?

So, reading the lines above, one can come with the conclussion that: if Fama lose this year's the Economics Nobel Prize, that necessary means that EMH doesn't work? I thought different about the Prize granted Committee.

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