http://www.bloombergview.com/articles/2014-10-13/nobel-for-charles-barkley-of-economics
Jean Tirole is a name uttered so frequently in the field that the most surprising thing about his Nobel win today was that hehadn’t won the prize already.
If you could summarize Tirole’s area of research in a single sentence, it would be about corporations. One might think that corporations are one of the easiest, most natural things for economists to study, but one would be wrong -- in fact, many economists wonder why corporations even exist. A lot of macroeconomic models, for instance, assume that companies work like Chinese peasants in the Great Leap Forward -- a million identical little producers, all making steel in their backyards.
Only a few economists have both the mathematical chops and the sheer mental doggedness to try to slice through the jungle that is the modern U.S. corporation, but Tirole has both of these. The machete he wields is game theory. Game theory is very different from the typical econ theory you hear about -- Adam Smith’s “invisible hand” is nowhere to be found. Instead, game theory deals with strategic interactions, with smart people trying to bluster, wheedle, threaten and team up with each other.
Notice that Tirole’s work on regulation defies the typical stereotype of what economists do. Many people think that economics is all about providing justifications for free markets, or assuming that businesses always do what’s best for their shareholders. Tirole, instead, takes a more practical approach, dealing with businesses as they are, not as they should be, and recommending government intervention when such intervention could improve the situation.
But rest assured, Tirole has also taken on the topic of asset markets and efficiency. In fact, Tirole has shown not one, but at least two ways that efficiency could fail and bubbles could take over. The first way is if traders think only in the short term and ignore the long term -- not an unrealistic idea, for those of us who have met some real-world traders. The second way results from trading between older and younger generations. Tirole has also done a lot of theory about financial crises and liquidity, the things that demonstrated their importance in 2008.
Jean Tirole is a name uttered so frequently in the field that the most surprising thing about his Nobel win today was that hehadn’t won the prize already.
If you could summarize Tirole’s area of research in a single sentence, it would be about corporations. One might think that corporations are one of the easiest, most natural things for economists to study, but one would be wrong -- in fact, many economists wonder why corporations even exist. A lot of macroeconomic models, for instance, assume that companies work like Chinese peasants in the Great Leap Forward -- a million identical little producers, all making steel in their backyards.
Only a few economists have both the mathematical chops and the sheer mental doggedness to try to slice through the jungle that is the modern U.S. corporation, but Tirole has both of these. The machete he wields is game theory. Game theory is very different from the typical econ theory you hear about -- Adam Smith’s “invisible hand” is nowhere to be found. Instead, game theory deals with strategic interactions, with smart people trying to bluster, wheedle, threaten and team up with each other.
Notice that Tirole’s work on regulation defies the typical stereotype of what economists do. Many people think that economics is all about providing justifications for free markets, or assuming that businesses always do what’s best for their shareholders. Tirole, instead, takes a more practical approach, dealing with businesses as they are, not as they should be, and recommending government intervention when such intervention could improve the situation.
But rest assured, Tirole has also taken on the topic of asset markets and efficiency. In fact, Tirole has shown not one, but at least two ways that efficiency could fail and bubbles could take over. The first way is if traders think only in the short term and ignore the long term -- not an unrealistic idea, for those of us who have met some real-world traders. The second way results from trading between older and younger generations. Tirole has also done a lot of theory about financial crises and liquidity, the things that demonstrated their importance in 2008.
Jean Tirole.
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