Transcript from an interview with Lars Peter Hansen

Interview with Lars Peter Hansen on 6 December 2013 during the Nobel Week in Stockholm, Sweden.

Could you describe your awarded work for young students?

Lars Peter Hansen: The way that I like to describe my work is that it’s developing statistical methods to do something without having to do everything. Let me elaborate a little bit on that. I am particular interested in these linkages between the overall macroeconomy and financial markets. One could imagine that to do this with a model you’ve got to have a detailed model of the macroeconomy, you’ve got to have a detailed, inside that a detailed model of the how financial markets work inside that economy in order to get off the ground and it’s very handy to instead just be able to do pieces of that without having to do the whole thing simultaneously. The methods that I developed were aimed being able to understand that piece without having to have a full-blown model of both, financial markets and the entire economy. Eventually one has to put all pieces together, but it is nice to be able to look at a portion of it and then want to come back and add much more details along this various different dimensions.

What were you doing when you got the message of being awarded the Prize in Economic Sciences?

Lars Peter Hansen: I am an early raiser and there’s two tasks I had that morning. The first was we had recently purchased a puppy so shortly after five o’clock that morning I took the dog out for a walk and then because I regularly exercise shortly after six o’clock I was in between taking the dog for a walk, came back, was just thinking about getting ready to go out and exercise. At that point in time the phone call came in – is this really happening? – so the first was, well the first indication that this was a call from Stockholm and the second person conveyed to be the message about the award. I started to believe it when the third person got on, the third person was someone who I knew for several years, Torsten Persson, and when he came on and congratulated me and I said: “Wow, I guess this is just really happening”. My wife could kind of sense that something was happening, she was in the kitchen so she quickly came out of the kitchen and witnessed this and figured it out.

What brought you to Economic Sciences?

Lars Peter Hansen: When I went to college I did a lot of experimentation across various different subjects. Early on I was a chemistry major, but I wasn’t very into doing lab work. I was actually working inside a chemistry laboratory and I just decided that probably wasn’t what I wanted to be doing. I became interested in the social sciences and I became very interested in the mathematics also at the same time. I explored political science, but by the junior year of collage I convinced myself that economics would be a good place for me to put together my interests in both social problems and economics and statistics.

At what point did you realize your work was a breakthrough?

Lars Peter Hansen: I worked on statistical methods and then I was very lucky early on in my carrier to have some great collaborators and some work that I did with Ken Singleton started getting a lot of attention and I guess at that point in time was the first time I had some feeling that this is an important research agenda. Maybe it was 1985 when Ken Singleton and I were given the Frisch prize. Ragnar Frisch was the first Nobel Laureate in Economics, /- – -/so it is called the Frisch prize and so on. At a fairly young age I was able to share that, I guess that was an indicator that the work was getting some attention. I remember being very much kind of enthusiastic and excited by the research, but it was very hard to tell which portions of the research were going to command the biggest attention. In fact even now when I work on research project, sometimes they get very low attention and sometimes they get a lot and while I am doing it, it is not always so easy to tell which of the ones will have the bigger influence.

What message you would like to confer to the young people?

Lars Peter Hansen: The one thing that was important to me was the fact that the education system was very tolerant of a late bloomer. In high school I would bring home so-called checkmarks for “does not respect authority” and I was not a very … my performance in high school was erratic. Certain teachers picked up on the fact that I had some talent, but I was not … I did not perform particularly well. The university that I went to happened to be the one where my dad was provost, but it’s a local university and that admits a large number of people. Just being able to go to a university, having some key-faculty members identify you as a person that might have some count and interest and then invest in and kind of allowing me as a late bloomer to still engage and embark in a career was tremendously important, so I guess the message would be first of all don’t give up on yourself early on and it’s good to be in environments that can tolerate late bloomers.

Can you tell us a little about the University of Chicago?

Lars Peter Hansen: Chicago is a very intense environment, I tell lots of people that, I don’t go to work looking for compliments because we are very critical of each other’s work and so. But there is a notion that economics is to be taken very seriously and it’s to be addressing important problems. It’s supposed to be rigorous and at same time relevant. That intensity, I think, has been very important for that environment and it dominates lots of interactions and I think it’s really been part of the reason Chicago as an economics department or as an economics community has been so productive. Economics is a field that advances and as it advances it necessarily gets more specialized. Chicago has been very good at resisting too much specialization. There is lots of interaction across areas and the like that I think can really be important for a creative research.

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