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Nobel award recognizes efficiency and effervescence

Monday, October 14, 2013 - 02:19

Oct. 14 - The research that led three economists to win the Nobel economics prize has changed the way investors behave. Bobbi Rebell reports.

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There were lots of congratulations, and a little market scare, when the Nobel Prize for economics was awarded Monday. Recipient Yale Professor Robert Shiller, speaking about the looming debt default: SOUNDBITE: 2013 NOBEL ECONOMIC PRIZE WINNER ROBERT SHILLER (ENGLISH) SAYING: "I'm thinking that this crisis will likely be resolved. We won't see a default. Even if we do it will be for one day, or something like that and even if it's longer I think it's not- it's not the end of the world and the markets might drop 7% on some day and then come back up. I should add, however, I do not know the future and I could be wrong." He added that the Fed's economic stimulus and growing market speculation were creating a bubbly property boom- in markets around the world. Shiller is well known for his high profile calls- the stock market crash of 2000 and the most recent housing market bubble. As is typical among economists- his views are in stark contrast to his fellow recipients. University of Chicago's Eugene Fama's theory is that financial markets always send the right price signals- and he says he doesn't know anything about bubbles! SOUNDBITE: EUGENE FAMA, NOBEL PRIZE WINNER, (ENGLISH) SAYING: "The world is a very uncertain place, and you expect that to be reflected in asset prices, you expect to see a lot of volatility in asset prices." On a practical level- that means that it is difficult- if not impossible- to beat the stock market over time- so investors might as well pour their money into index funds. The third recipient, Lars Peter Hansen also from the University of Chicago, contends that we often underestimate how much uncertainty there is in terms of our understanding of the economy- and that uncertainty is key. SOUNDBITE: LARS PETER HANSEN, NOBEL PRIZE WINNER, (ENGLISH) SAYING: "It seems to me that uncertainty is potentially important because it can- it can have consequences because it can induce extra cautious behavior, and kind of how it induces that cautious behavior becomes important. It can influence new productive enterprise and the like. I think it's critical to understand it and it has awesome implications." The three of them do share one thing- the 8 million Swedish crown prize - about $1.25 million.

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Nobel award recognizes efficiency and effervescence

Monday, October 14, 2013 - 02:19