Jun 11, 2011

Scientific Profile of the Day: George Akerlof

From FINANCE & DEVELOPMENT (Source: Mankiw's blog):
In his 2001 Nobel lecture, Akerlof describes his own life as a child and young man as mostly a happy one, but subject to the vicissitudes of his father’s career. Akerlof remembers thinking that “if my father lost his job, and my family stopped spending their money, then another father would lose their job and so on. The economy would spiral downward.” Worries about his father’s job prospects may explain, he wrote in the lecture, why “in some sense I began work on unemployment theory when I was 12. Fifty years later I am still mulling over the same subject.”
His approach to economics: 
He says that he is careful with the “facts that matter” and that his research has always been guided by trying to explain facts: “Why is there unemployment? Why do people report that they have trouble selling their houses? Why are some people poor? Why do people procrastinate? Why do people act up? Why do entire nations act up?”
Since 1966, much of Akerlof’s career has been as a professor at the University of California, Berkeley. As with Yale, there is a family association; his great-grandfather graduated from Berkeley in 1873. When he won the Nobel in 2001, Akerlof gave the prize money to Berkeley: “I did that because I felt that they had supported me well and I wanted to show how grateful I was.” Christina Romer, a fellow professor at Berkeley, says that “George is a kind, generous, and enthusiastic person who loves economics. He contributes immeasurably to the department by simply being the kind of person he is.” She adds that his “teaching evaluations are simply off the charts.” Shiller says that Akerlof is like a father toward the graduate students he supervises: “He advises them to be nice when they go on the job market. The people interviewing you are hiring you to be a colleague, he tells them, and they want to see that you are a nice person.”
Akerlof says he chose the example of used cars to make his paper “more palatable” to U.S. readers. But his interest in the subject had been triggered when, during his stay in India in 1967–68, he noticed people’s difficulty obtaining credit. He kept this example in the paper, along with sections on how the “lemons principle” could also explain why the elderly had trouble obtaining insurance and why minorities had difficulty obtaining employment. All this proved too exotic for much of the academic market of the time; the paper was turned down by three leading journals before it was finally published in the Quarterly Journal of Economics.
See the review of his book "Identity Economics" in this post.

Few things to reflect on:
  • Does the future of economics depends on successfully including the insights form other sciences, specially psychology, neurobiology, etc.? 
  • When it comes to the role of the government in periods of crisis, in the case of developing countries, we should remember that policies do not work in an institutional vacuum.  
  • Why the used car market has not collapsed? 

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