The professor who almost won the Nobel Prize—yet again
Despite rumors, Washington University did not make it to Geneva this year.
A professor of banking and finance in the Olin Business School, Philip Dybvig was on the unofficial shortlist for this year’s Nobel Memorial Prize in Economic Sciences—his name was tossed around by pundits and handicappers, and an article in the Wall Street Journal listed him as one of the top contenders for the prize, even though the paper he would have won for was published decades ago.
Dybvig explained that the Nobel Prize in economics is a relatively new prize and therefore the entity that awards the prize has to play catch-up in the field, which is why Dybvig was shortlisted by pundits and handicappers for a paper he wrote in 1983.
The prize ended up going to Robert Schiller of Yale University and Eugene Fama and Lars Peter Hansen, both of the University of Chicago.
“There’s a tradition in economics of giving the prize to people when they’re old,” Dybvig said. “I like to think of myself as being too young to get the Nobel Prize, but I don’t know if that’s actually true.”
If Dybvig were to have won the prize, he would have been the first professor from the Olin Business School to do so. The last time a Washington University faculty member won the prize was in 2004, when visiting professor of pediatrics Aaron Ciechanover won the Nobel Prize in chemistry.
Dybvig said this was not the first year his name had been thrown into the hat.
“My wife…turns into Sheldon on ‘The Big Bang Theory’ when she sees these articles,” Dybvig said. “Last year, she said there was a Chinese website and a Russian website that both had picked me.”
Although none of his students this year said anything to Dybvig about his name being put up for the prize, Dybvig recalled that one student last year asked if he would be in class the next week or if he would be in Geneva.
Dybvig’s name came up as one possible winner because of an influential paper he and Douglas Diamond of the University of Chicago wrote in 1983 explaining how bank runs are a rational phenomenon. When banks give a loan, it isn’t paid back right away, so a bank can try to sell the debt. However, buyers think the bank is trying to sell because the asset isn’t worth very much, not because the bank needs the cash.
“So even if the full value of the asset is bigger than the value of the deposits, if everybody wants their money out at once, the banks will fail,” Dybvig said. “Historically, they’ve been referred to as banking panics.”
Dybvig explained that this behavior is typically seen as irrational, and he and Diamond were disputing this common view.
“They would say, ‘This is crazy. People are acting strange,’ but in fact, it’s perfectly rational. If you think a bank isn’t going to be there tomorrow, then you’ll take [your money] out today,” Dybvig said.
The paper also advocates ways for banks to avoid bank runs, such as setting up contracts that provide liquidity or putting in place institutions that will reduce the probability of a run, such as deposit insurance.
Dybvig admitted it would have been nice to win the prize, though he said if he were picking the winner, it would be Steve Ross, his advisor in graduate school.
“He’s done really important work, and he deserves it more than I do,” Dybvig said. “It’d be nice to win, but I’d feel a lot better about that if he got it first.”
Dybvig also gave credit to the winners of the 2013 prize. He’s worked with Schiller, whom he called “a creative scholar,” both as his student and as a colleague, and even recalled mocking Schiller when he was taking his class at University of Pennsylvania.
“The Ph.D. students [at UPenn] usually have skits that make fun of the faculty members. I shaved my beard so I could play Schiller in the skit,” Dybvig said.
He was also happy to find that Fama received the award because the prize isn’t typically awarded to people who specialize in economic fields other than finance.
A number of business school students were excited by the fact that Dybvig’s name floated as one of the most likely winners for the prize.
“I think it really boosts the academic credibility of Olin—I wish more students were aware of this,” Olin senior Madeleine Parker said. “If he was on the short list this year, who knows? We could have a Nobel Prize winner on our faculty pretty soon.”
Junior Amy Fjerstad said that the quality of a professor is not contingent on whether or not he or she has won a Nobel Prize.
“I think being a winner is definitely very impressive, but I think that having professors that are really good in their fields and really passionate about what they do is just as important,” Fjerstad said. “A lot of Wash. U. professors are experts in their area of study without having won Nobel Prizes for their work, and they’re still really excellent teachers.”
Mahendra Gupta, dean of the Olin Business School, and Provost Holden Thorp were unavailable to comment.