Why it's so funny that Fama and Shiller just simultaneously shared the Nobel in economics

It was terribly amusing to me when I heard that Eugene Fama, Lars Peter Hansen, and Robert Shiller shared the Nobel in economics for 2013.

I’m not an economist, so I don’t know all the details of the work of these guys. In fact, I had not heard of Lars Peter Hansen before, so I have nothing to say about him. But Eugene Fama and Robert Shiller are practically household words if you pay any attention to financial markets and investment, and the story of the housing bubble. What is really funny is that Fama and Shiller have such different opinions about fundamental matters in economics, but are sharing the Nobel! I think it’s cool that the media are covering this amusing situation, because maybe the wider public will get an idea of what kinds of ongoing debates there are in economics.

And here’s one of the economics blogs I follow that has a discussion of what these economists did.

Eugene Fama

I first learned about Eugene Fama through books on personal investing that promoted his efficient market hypothesis and therefore the use of indexed mutual funds and ETFs. Dimensional Fund Advisors, making use of the work of Eugene Fama and Kenneth French, has in particular promoted sophisticated portfolio management based on modifying plain indexing (such as Vanguard’s mutual funds) with small cap and value stock overweighting. William Bernstein was famously enthusiastic about DFA and even suggested ways for individual investors to do their own simulation of their three-factor approach.

More on DFA versus Vanguard.

Fama’s fellow Chicago school economist wrote up some very opinionated and enthusiastic praise and summary of Fama’s work.

In any case, Fama remains one of the biggest die-hard defenders of the efficient market hypothesis, to this day. His impact on the world of investing cannot be overstated. If you invest in passively managed indexed funds, rather than chasing alpha, you’re implicitly relying on and believing in the work that he and others have done.

Robert Shiller

Robert Shiller comes from a completely different economic philosophy and even public existence.

In stark contrast to Fama and the Chicago school of neoclassical economics based on rational expectations, Shiller is a behavioral economist, which believes in irrationality and market inefficiency.

He has written a lot of popular books and often goes around giving talks. He is most famous for warning about the market bubbles of the past decade and more, including the last housing bubble.

Speaking of bubbles, check out what Fama said about the housing bubble and bubbles in general. He’s practically denying that bubbles exist.


I think it’s awesome to have two very outspoken economists with radically different approaches to economics shared the Nobel this year. It may help the public understand better the nature of the field of economics.

(Update of 2013-12-10)

Two months later, Fama and Shiller are still an item. Check out this interview.

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