If Fama were Newton, would Shiller be Einstein?

I Follow Noahpinion blog by  prof Noah Smith, he recently made a remarkable article by comparing Fama were Newton, would Shiller be GoogleEinstein? OK OK, another quick break from my blogging break. An Econ Nobel for behavioral finance is just too juicy to resist commenting on.

Before the prize was announced, Prof  said that it would be funny if Fama and Shiller shared the prize. But he also think it’s perfectly appropriate and right that they did. Many people have called this prize self-contradictory, but I don’t think that’s the case at all. If Newton and Einstein had lived at the same time, and received prizes in the same year, would people say that was a contradiction? I hope not! And although it’s probably true that no economist is on the same intellectual plane as those legendary physicists, Fama’s Efficient Markets Hypothesis (which was actually conceived earlier, in different forms, by Bachelier and Samuelson and probably others) seems to me to be the closest thing finance has to Newton’s laws, and behavioral finance – of which Shiller is one of the main inventors – seems like an update to the basic EMH theory, sort of like relativity and quantum mechanics were updates to Newton. Continue reading “If Fama were Newton, would Shiller be Einstein?”