Nobel Minds 2022

The 2022 Nobel Prize laureates in the fields of physics, chemistry, physiology or medicine and economic sciences met at the Bernadotte Library at the Royal Palace in Stockholm on 9 December 2022. They discussed their discoveries and achievements, and how these might find a practical application. The discussion was hosted by the BBC’s Zeinab Badawi.

Telephone interview, October 2022

“I thought, ‘Something is up.’ And I figured out pretty soon what it was”

Telephone interview with Philip Dybvig after the announcement of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2022 on 10 October 2022. The interviewer is Adam Smith, Chief Scientific Officer of Nobel Prize Outreach.

Philip Dybvig’s phone was on silent, so he missed the call from Stockholm. When, half asleep, he did confirm the news, he recalls that his initial response was one of stress: “What’s this going to do to my life?” In this call recorded a few hours later he talks briefly about the theoretical model that he and Douglas Diamond built, and how important it is to ensure that such findings are accessible to policymakers: “We worked so hard to make the paper simple.”

Adam Smith: This is Adam Smith.

Philip Dybvig: Hello.

AS: Hi, so am I speaking with Phil Dybvig?

PD: Ah, yes you are.

AS: Oh, how lovely. Thank you. Well, first of all, how did you hear the news?

PD: So, basically I woke up this morning and my phone had been on ‘do not disturb’. And when I woke up I had what seemed like thousands of messages and things. So I thought something is up. And I figured out pretty soon what it was.

AS: When did you know for sure that it was true?

PD: I knew that this was the day, and actually a couple people had suggested I might get it. I said, no, that won’t happen. And, but anyway, I went to nobelprize.org, your website and there it was with Ben and Doug and me. So…

AS: Very nice, very nice.

PD: I was half asleep and my initial response was probably stress. What’s this gonna do to my life? But now that it’s settled in some, I’m quite happy.

AS: Yeah. So you’ve had a couple of hours to get used to it. What’s it done to your life so far?

PD: Well, I just, I have more phone calls and emails and messages than I can possibly respond to… quickly.

AS: Yes. I suppose it’s gonna be playing catch up for quite a few days. Douglas Diamond, when we spoke to him, was very eloquent in speaking about your relationship and how much he valued your insight into social sciences and to the clarity of your thought. It was obviously a very special relationship that led to you being able to develop this model.

PD: Yeah, Doug is an amazing guy and he’s a great co-author. And we worked so hard to make the paper simple, but during the time we were writing it, it could be somewhat intense. It was never unpleasant. But, you know, one of us would say, “Well, we should assume this.” And then the other one would say, “No, that’ll be too complicated, we can never solve that.” And the other one would say, “Well, how about if we try that?” And then we say, “No, no, that’s gonna throw away all the economics,” and back and forth. And I’m hoping that as a result, you know, for economists that, they’ll find that to be a simple paper to read. And I think it paid off some because the model’s pretty simple. It’s easy to extend, with you know, we’ve left some room where people can add some things and still solve the model.

AS: Well, it’s become so important and is so very widely used. Do you feel that it’s being applied correctly?

PD: Oh, one never knows. I do think, you know, on a few occasions I’ve talked to practitioners who are, especially regulatory practitioners, who do understand this. And of course Ben, he understands our model and he’s made his own separate contributions and I assure you he understands their model and to the extent that it was useful for what he was doing, he made good use of it.

AS: From a theoretician’s point of view, do you think that the world is better set now than it was when you were working on this model to avoid crises? I mean, obviously, although this may not be a, I don’t know whether this counts, what we’re in now, as a full-blown crisis. An awful lot of people are very worried about what’s happening. Are we in a better place?

PD: That’s always hard to assess. And as the theorist, I know more about the models than I do about the details of what’s going on in the world. Personally, if I look at the economy, I think we’re in a little bit of a tough time. But I’m worried more about inflation and government debt and big spending than I am about an actual financial crisis where the banking sector has problems. One of the takeaways that you could have from our model is by nature financial crises are not predictable because if people could predict it, then they would not enter the contracts they’re in that are gonna be subject to run.

AS: Yes, well, we will have a chance to speak about this at greater length once some time has passed and things are a little bit calmer.

AS: Well, it’s been a pleasure speaking to you, and many congratulations.

PD: Yeah, thanks so much.

AS: Look forward to speaking again soon. Thank you.

PD: Yeah. Bye-Bye.

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