作者:謝國忠 | 评论(0) | 标签:诺贝尔经济奖, 谢过忠

The Nobel Committee awarded this year’s prize to Peter Diamond, Dale Mortensen, and Christopher Pissaredes for researching why labor market has many unemployed and vacancies at the same time. It is based on Professor Diamond’s search theory developed in the late 1960s. Economics is divided into macro and micro. But even microeconomics is mainly about static situations, still quite distant from the real world hustle and bustle. Of course, theorists can assume away the details as noise, i.e., the market eventually comes to what the theory says. Professor Diamond showed that the dynamic details could lead to very different outcomes.

I still vividly recall how he showed that, even though there are numerous shops, the retail price would end up the monopoly price rather than the perfect competition price, if it is troublesome to walk from one shop to another. A little bit reluctance on the part of shoppers to look around could lead to such a different outcome.

Professor Diamond is one of few economists today who truly deserve an honor like Nobel Prize. The lesson from his research would humble all those brilliant minds that conjure up pretty math models behind the efficient market assumption, causing so much damage to th world when misused by practitioners. The world is granular, not smooth. Ignoring the former can be deadly, as the last financial crisis shows.

I’m not heaping praises on Professor Diamond just because he signed my Ph.D thesis. It is one reason. I worked with a different professor on my thesis mostly. He didn’t want to sign it. My thesis was mainly to explain that (1) Japan’s system was not efficient and its peculiarities reflected its imperfections rather than better inventions and (2) its asset prices were exaggerated by the system. At the time many prominent economists were developing theories to explain why Japan’s system was better. Professor Diamond worked with me for a few months and signed my thesis. The history has been kind to me. What I wrote has turned out to be quite right. Professor Diamond didn’t make a mistake signing my thesis, I hope. And I am grateful to him for being kind to me

It is not clear why there should be a Nobel Prize for economics. It is not a science and is closer to philosophy. Modern economics uses sophisticated mathematics to give it the appearance of science. That is highly mileading and, sometimes, with disastrous consequences.

Nassim Taleb was talking about suing the Nobel Prize Committee for contributing to the financial crisis. They awarded the economics prize in 1990 to Harry Markowitz, Merton Miller, and William Sharpe for developing the optimal asset allocation theory. Mr. Taleb’s complaint is that all those models are backward looking, ignoring the biggest risk to financial investors, a disruptive event. Such events occur infrequently and cannot be captured by statistical models that rely on recent data. Hence, such models lead investors to over invest in stocks vs. bonds. Hence, according to Mr. Taleb, the Nobel Committee, by conferring legitimacy on the asset allocation theory, is complicit in causing trillions of dollars of losses that stock investors have suffered. Mr. Taleb of the ‘Black Swan’ fame probably has a lot of anger inside and needs an outlet.

I am not sure that the Nobel Committee is culpable. The theory or at least a derivative of it-the portfolio insurance theory caused the stock market crash on October 19, 1987. Richard Bookstaber detailed the story in his book (‘A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovations’).

Option pricing model has caused much more harm. In 1997 the Nobel Prize went to Robert Merton and Myron Scholes in collaboration with the later Fischer Black for developing tools for valuing stock options. Long before the Prize the financial industry has used the Black-Scholes formula for valuing options. When I learnt the theory, any professor would have put a lot of caveats on its applicability in the real world. It assumes that the market is continuous and infinitely liquid, i.e., when the market moves from A to B, one can execute any amount of trades at any price between A-B. The problem is that, when you need the market most, it’s just not there. As Mr. Taleb points out, the biggest risk is an unforseen and disruptive event. By ignoring it a model is a deception device.

Are academics responsible for the Wall Street creating vast markets with false theories? I am not sure. The market happened because too many people needed to make money. They needed to create the new new thing. The theories were there to serve as excuses. Without these theories something else would have happened, causing similar damages.

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