Sunday, October 08, 2006

Fama for Nobel

The Nobel Prize in economics* is about to be given out, and I am rooting for Eugene Fama. Fama is a University of Chicago economist who did lots of pioneering work on market efficiency and CAPM. Like many finance theorists, he put his money where his mouth is with Dimensional Fund Advisors, which is an investment firm in Santa Monica run in accordance with his theories. It has generally been quite successful, and I guess it’s not fair, but it is amusing to compare it with Long Term Capital Management with its Nobelists Robert Merton and Myron Scholes.

I have a personal reason for pushing for Fama. I know his son, a gifted amateur cartoonist, Gene Fama. By amateur, I mean that he didn’t earn his living as a cartoonist, although he did earn some decent cash doing it from time to time (I should know—I paid him for his services). He is a very funny, talented guy. I did meet his father once, who intimidated me (I really didn’t know who he was, but he asked pointed questions about the business I was in, publishing, that made me realize how irrationally it was run**).

So as usual in this kind of thing, I have a perfectly sentimental irrational reason for hoping Eugene Fama wins. I don’t think he needs the money, but he should get the recognition.

Modigliani got it in 1985, Miller and Sharpe in 1990, and Merton and Scholes in 1997—it seems like Fama has been left out, even though his work as I understand it is right up there with all those other guys. I would hate to see a situation like Fisher Black, who died before he could get the prize. Nobel Prizes are often like that—a race to give out the prize to all deserving recipients before they die.

So for what little it is worth, my vote is for Fama.

*By the way, Thomson Scientific is predicting Fama and French for Nobel, as is Marginal Revolution. He's on the shortlist in predictions from and VoluntaryXchange.

**That said, you can download two of his books for free from his website, so maybe he doesn't look at publishing from the most economically rational point of view himself!



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