Monday, the Nobel Prize for Economics was given to Professor Richard Thaler of Chicago Booth. He has been on the Booth faculty since 1995. It’s notable because it is another Nobel Prize in the trophy case for a Chicago economist. It’s also notable because no one would describe Professor Thaler as a classic Chicago School economist.
My own personal opinion is when you look at Behavioral Economics and layer it over something like consumer behavior, it can be very powerful. However, I believe Fama is closer on financial markets. Although, when I was trading in the pit I saw some people do irrational things and I have done a few myself.
There is certainly something there. However, when you put “Nudge” in the hands of bureaucrats and give them free reign, it can get scary. I might be willing to trade more individual liberty with the perceived inefficiency and randomness of the classical models.
There were several articles about Professor Thaler. Here is the Chicago Booth release. I also think it is worth reading Craig Pirrong’s blog post. Craig is a professor and a Chicago Ph.D. He is a classical Chicago School economist.
One thing that I think is really misunderstood about the University of Chicago is that people assume it is monolithic. Everyone is a Milton Friedman clone. It’s not. As a matter of fact, they embrace the debate and openly encourage it. Plenty of my fellow MBA graduates run the gamut from socialists to hardcore left wing all the way to hardcore right wing. They don’t clone free market capitalists there. From books I have read and from oral stories I have heard, even the Chicago Boys debated vigorously even though they all were from the classical school. This is why Dick Thaler and Eugene Fama are both on the faculty. They definitely disagree whether stocks show all public information or not. They both research it, and present their research and argue about it. It’s also why a professor like Austan Goolsbee, no Chicago School economist, sits on the faculty with someone like Lars Hansen who has a lot of things in common with Friedman and his posse.
The best example I can show is linked here. Here is the video, which I have put on this blog before.
The disharmony makes everyone better. The disagreement is done in such a way where there is tolerance. It’s something we have lost in America.