The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2013
Eugene F. Fama, Lars Peter Hansen, Robert J. Shiller
Telephone interview with Eugene F. Fama recorded immediately following the announcement of the 2013 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 14 October 2013. The interviewer is Nobelprize.org's Adam Smith.
[AS] Oh good morning, my name's Adam Smith, calling from Nobelprize.org, the official website of the Nobel Prize in Stockholm.
[EF] Oh yeah, I'm watching it.
[AS] (laughs) We were ringing to offer our congratulations and also to ask whether we might able to record just a two or three minute interview with you? We have a tradition of speaking to all new Laureates on the day of the announcement.
[AS] Thank you very much. Well, as I say, first of all, our congratulations. And, how did you hear the news that you'd been awarded the Economics Prize?
[EF] I just got a call from you ([AS] laughs), from the ... I was so frozen up, I don't remember his name actually, but I remember Per Strömberg talking to me.
[AS] And how long ago was this? Just a few minutes?
[AS] Yes. What was your first reaction on hearing the news?
[EF] Well, I was thrilled (laughs).
[AS] Have you ... have you ever thought how you might react to this news, if it came?
[EF] Ah, I don't know ... I didn't want to ever presume that I would win, so ...
[AS] No, of course.
[EF] I didn't really think about it a long time (laughs). But I knew I'd be thrilled, of course. Who wouldn't?
[AS] And, your work stems from work you did during your PhD thesis.
[EF] Right. Well, I mean, some of it, right?
[AS] Exactly. But you studied French initially, so what was it that turned you on to the study of asset pricing?
[EF] I ... in my Junior Year at college I switched ... I was getting kind of tired of French, and so I took an economics course and I loved it, and the rest of my two years in college I spent in economics. And then I came to the University of Chicago, got a PhD from the Business School, where I had the privilege of having Professors Merton Miller and Harry Roberts, and Lester Telser and Benoît Mandelbrot coming around often, and the work on asset prices was just starting to warm up at that time, so, it was a good area for a young person to get into.
[AS] And this is, yet another Economics Prize for the University of Chicago. What is it about the environment there that is so productive?
[EF] Well, we have good people – you need that, obviously (laughs). And it's a very interactive environment; people help one another out a lot. I mean, I couldn't do what I did without the help of my professors at the time and colleagues since then and students since then. It's a very interactive place, where everybody contributes to everybody else.
[EF] Very unusual.
[AS] Just let me ask you one more question, please. The Prize will focus attention on the area of asset pricing very widely, so, of course your work is very well known to those in the Finance community. But people who have never encountered this before will suddenly be exposed to it. What, fundamentally, would you say was the relevance of your work, to the world at large?
[EF] Well, for this particular area, it's really, the idea is really ‘how do you measure risk?' And if the market is pricing things correctly, what is the relation between the expected return, which is the compensation for risk, and the risk. So ...
[AS] Ok, perfectly said. Thank you very much indeed.
[AS] Okay, we'll look forward to speaking again soon. Thank you.
[EF] Sure, bye.
[AS] And congratulations. Bye bye.
Listen to the Interview