When comparing the Medal to the Nobel economics prize a friend of mine says "There weren't any Bates Clark winners involved with Long Term Capital Management" referring to the failed hedge fund that boasted two winners of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.
More after the jump.
From the Federal Reserve Bank of Minneapolis:
Interview with Susan Athey
Stanford economist on optimal auctions, better models and the future of big data.
Interview conducted March 6, 2013
If federal tax rates change, how will that affect a firm’s production decisions? Engineers develop a new drilling technology: What impact might that have on global oil prices? Suppose American teenagers suddenly decide that balloons are very, very cool. Will that significantly alter U.S. helium reserves and extraction?
HT: Conversable EconomistSuch problems—how will an equation’s variables respond to a shift in their economic environment?—are solved with “comparative statics,” a type of analysis that compares outcomes before and after an external change to an otherwise untouched (that is, static) model.Forestry Auctions
The questions may sound simple, but solving them with precision long required an unwieldy freight of questionable assumptions and abstractions. Stanford economist Paul Milgrom and colleagues improved the process considerably in the early 1990s with “monotone” comparative statics, showing that fewer assumptions were necessary.
Then, in 1994, Milgrom’s graduate student Susan Athey advanced into a far more complex realm: uncertainty. Forecasting in an uncertain world is intuitively difficult, and mathematically the puzzle seemed “just too hard” to Milgrom and others. But Athey solved it, identifying the surprisingly small number of assumptions about risk preferences and types of risk that would “guarantee robust...predictions” in the context of uncertainty.
Athey now refers to this methodology as a simple “black box,” but her elegant solution astounded her colleagues. “I remember being just totally stunned,” Milgrom said years later, in a Wall Street Journal interview.
In 2007, this and other research earned Athey the John Bates Clark Medal. She was the first woman to win the prestigious honor, then given every other year to the best American economist under 40.
The Clark citation noted that Athey’s “powerful techniques...have been profitably used in applied problems.” Portfolio investment decisions, for example, pricing and production choices by risk-averse firms, a worker’s quandary about going back to school, everyone’s dilemma about spending or saving—difficult choices seemingly swamped by uncertainty—are all now approachable due to her research.
Now back at Stanford after professorships at MIT and Harvard, Athey continues to develop powerful tools, make empirical discoveries and foster theoretical advances. She’s a pioneer in the economic analysis of auctions. She uses game theory to understand decision-making by businesses and central banks. She has analyzed mentoring and diversity, how staff training and new technology jointly raise productivity, and the Internet’s impact on print media. In the following conversation, Athey touches on a number of these topics and others, always bringing greater certainty to complex realms in economics.
Region: Let me begin with your work on forestry auctions. You wrote a paper, published in 2011 with Jonathan Levin and Enrique Seira, which compared revenue outcomes for open- and sealed-bid auctions. It reexamined Vickery’s 1961 work. Would you describe that work for us?
Athey: Sure. Our work, as you mention, departs from this famous and extremely surprising theorem of Bill Vickery that was Nobel prize-winning research. His basic theorem says that these two different ways of auctioning anything, like timber, under some conditions will yield exactly the same outcomes.
One way is an open outcry auction, where bidders get in a room and keep outbidding each other until the last bidder drops out and the auction ends. The second way is a first-price, sealed-bid auction where the bidders submit their bids in writing. The highest bidder wins and pays his bid.
These two auctions are quite different. In the first, the winner pays the price at which the last competitor drops out, so that the second-highest bidding competitor determines the price. In the other one, the winner pays exactly how much they bid. What’s really surprising is that in theory those two methods produce exactly the same outcomes.
Region: But you looked at data, as well as theory.
Athey: Yes. The paper picks up from the fact that in practice the assumptions of that theory don’t hold exactly. What kind of auction format you use can matter if you have asymmetric bidders. If you have, for example, small bidders who on average have lower values for the thing that’s being auctioned, they can be discouraged from even entering an open auction. They know if they show up, another (larger) bidder can just outbid them.
In contrast, in a first-price, sealed-bid auction, they can hope that the strong bidders might shade their bids a lot, trading off a reduced chance of winning the auction against paying less when they do win. So the small bidders have a chance to sort of “sneak in” and win the sale, even if they don’t have the highest value for the object. As a result of those kinds of dynamics, you expect that more small bidders will show up at a sealed-bid auction....MUCH, MUCH MORE
Our last mention of the John Bates Clark Medal was:
...Oddly enough Professor Woodford holds the John Bates Clark Chair at Columbia but did not win the Clark Medal.Prior to that we have "There Is No Nobel Prize in Economics (scientists and the Nobel family are not impressed)":
He did however win a MacArthur 'Genius Grant'.
...“The Economics Prize has nestled itself in and is awarded as if it were a Nobel Prize. But it’s a PR coup by economists to improve their reputation,” Nobel’s great great nephew Peter Nobel told AFP in 2005 , adding that “It’s most often awarded to stock market speculators .... There is nothing to indicate that [Alfred Nobel] would have wanted such a prize.” ...
