Methods for all moments

THE “prize in economic sciences in memory of Alfred Nobel”, as it is officially known, sometimes struggles to command the same respect as its counterparts. Though awarded by the Royal Swedish Academy of Sciences, just like the prizes in physics, chemistry and medicine, it was a latecomer to the ceremonies, established in 1968 by Sweden’s central bank rather than in 1896 by Mr Nobel’s will. This year’s winners appeared to reinforce doubts about the prize’s standing. One, Eugene Fama of Chicago, is known for his ardent belief in the efficiency of markets: he declined to renew his subscription to this newspaper after tiring of its incessant warning about bubbles, the very existence of which he denies. Robert Shiller from Yale, in contrast, is known for his prescient warnings of bubbles, in technology stocks in the 1990s and in housing in the 2000s.

Yet for all the apparent contradiction, Messrs Fama and Shiller, along with Lars Peter Hansen (also of Chicago), have established most of the surprisingly small amount economics has to say about asset prices. Although they disagree with one another about how markets operate, the work for which they are being recognised is not itself irreconcilable. For proof, look no further than investors, who have profited from the work of all three men.