A Nobel Prize for the Empirical Analysis of Asset Prices

The 2013 Nobel Memorial Prize in Economics was awarded to Eugene Fama, Robert Shiller, and Lars Peter Hansen for their empirical analysis of asset prices. The paper reviews critically the work of the three economists and highlights the differing conclusions that the three researchers reached on the relatively narrow question of the rationality of individual investors. The paper argues that there is a time inconsistency in the idea that markets reveal information about the future and concludes that, despite the sophistication of their statistical analysis, the laureates have been unable to demonstrate how a sophisticated financial economy can produce their empirical results.

In our age, when men seem more than ever prone to confuse wisdom with knowledge, and knowledge with information, and to try to solve problems of life in terms of engineering, there is coming into existence a new kind of provincialism which perhaps deserves a new name. It is a provincialism of, not of space but of time; one for which history is merely the chronicle of human devices which have served their turn and been scrapped, one for which the world is the property solely of the living, a property in which the dead hold no shares. The menace of this kind of provincialism is that we can all, all the peoples on our globe, be provincials together; and those who are not content to be provincials, can only become hermits (T.S. Eliot, Essay on Virgil).Objects contain the possibility of all situations (Ludwig Wittgenstein, Tractatus Logico-Philosophicus 2.014).