Longtime friends, colleagues share the Nobel for economics

When Daniel Lewis ’13 woke up on Monday, Oct. 10, the first thing he did was to go online to check the news. The Nobel Prize for economics was being announced that morning, and he knew that Christopher Sims, the Harold H. Helm ’20 Professor of Economics and Banking and the preceptor in Lewis’ “Money and Banking” class, was a leading candidate. When he learned that Sims had been selected, Lewis quickly dressed and headed for his 10 a.m. precept, where he found Fisher Hall crowded with photographers and University officials waiting for Sims to arrive.

Across campus, Giri Parameswaran, a graduate student in economics, also checked the news, but with slightly more at stake. As president of the Graduate Economics Club, Parameswaran runs a Nobel Prize pool in which graduate students, faculty, and staff can put $10 into a pot and bet on which economists will be selected each year. Seventeen of 49 entries in this year’s pool included Sims’ name. 

Sims himself got the news a few hours earlier, after he was awakened by a 6:15 a.m. phone call. His wife picked up the phone but was unable to find the “talk” button in the dark, and the ringing stopped. Sims said later that he prepared to go back to sleep, but then remembered that this was the morning of the Nobel Prize announcement. When the phone rang again a few minutes later, Sims was quick to grab it and received the news from the Royal Swedish Academy of Sciences that he would be sharing this year’s prize with his colleague of many years, Thomas Sargent, an economics professor at New York University who is a visiting professor at Princeton this semester.

As Sims joked at a crowded Richardson Auditorium press conference later that day, he and his wife concluded that, if the call was a prank, the caller had a very convincing Swedish accent.

That Sims and Sargent received the honor hardly was unexpected, as the participants in Parameswaran’s pool knew. The two were recognized for their groundbreaking work in what is called the rational-expectations school of economics, which holds that what happens in the economy is influenced to a great degree by what people expect to happen. 

Although they are longtime friends and former graduate-school classmates at Harvard, the two economists for the most part have worked separately. Sims has developed what The Wall Street Journal described as “mathematically elegant” models for analyzing the relationship between monetary and fiscal policy. He also has developed a tool, called vector autoregression, that analyzes how policy changes — such as an increase in interest rates — affect the broader economy.

At the University press conference, the pair fielded questions from journalists around the world but declined to give any headline-making answers. When asked to assess current efforts to revive the U.S. economy, Sims replied, “Answers to questions like that require careful thinking and a lot of data analysis. The answers are not likely to be simple.”

A Wall Street Journal op-ed by economist David Henderson proclaimed the award to Sims and Sargent to be “a Nobel for non-Keynesians,” but Sims refused to take sides. “I’m not a non-Keynesian,” he said in an interview, adding that he and Sargent have been “trying to do empirical macroeconomics using formal tools of statistics. Those tools aren’t in themselves ideological.”

Sargent — who joked that when he received his phone call about the Nobel Prize, the caller asked him if he knew how to get in touch with Sims — also taught a class, “Macroeconomic Theory I,” on the morning of the prize announcement. He and Sims are co-teaching a graduate course, “Advanced Macroeconomics,” this semester.

The two most recent winners bring to 13 the number of current Princeton faculty members (including visiting and emeritus faculty) who have won the Nobel Prize. Sims is the third faculty member to win the economics prize in the last decade, joining Daniel Kahneman (2002) and Paul Krugman (2008). Sims and Sargent will share the award of 10 million Swedish kronor (about $1.5 million); the awards ceremony takes place Dec. 10 in Stockholm.