Robert Lucas wins Nobel Prize in EconomicsPrize awarded to U of C faculty member for fifth time in six years
Applause from dozens of well-wishers, handshakes from three fellow Nobel laureates and a flurry of attention from reporters, photographers and television crews were all part of an extraordinary day for Robert Lucas -- and what has come to be an almost ordinary early October day for the University. Lucas, it was announced Tuesday, has been awarded the 1995 Nobel Memorial Prize in Economic Sciences. He is the fifth University of Chicago economist to win the Nobel in the last six years.
Lucas, who is the John Dewey Distinguished Service Professor in Economics and the College and who received both his undergraduate and graduate degrees at Chicago, won the Nobel "for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy." The Swedish Academy of Sciences in its release called him "the economist who has had the greatest influence on macroeconomic research since 1970."
Lucas' work has had a profound effect on macroeconomics, or the study of the economy as a whole. His worked has shown that because people make rational decisions about their economic welfare, their actions can alter the expected results of government economic policies. The result is a rethinking of the effect of government economic policies. Because of Lucas' work, economists today are better informed and less optimistic about the ability of governments to fine-tune economies through changes in monetary or other policies.
"Bob Lucas has been the central figure in macroeconomic theory for the past quarter of a century," said President Sonnenschein. "His work has transformed thinking on economic policy and redirected virtually all research in this field. At the same time, he has chaired the department and taught our graduate and undergraduate students.
"We are very proud of him and of his accomplishments as a scholar, proud that he has taught so many of our students and proud of him as an alumnus of our college and of this great department of economics. He is an intellectual giant and a wonderful human being."
"No one since Milton Friedman has had so great an influence on the development of macroeconomics as Robert Lucas," said Gary Becker, University Professor in Economics and Sociology and winner of the Nobel Memorial Prize in Economic Sciences in 1992. "This Nobel is very much deserved. His work was initially met with hostility, but it came to be accepted as the view of the future."
In addition to conducting research, Lucas is an active mentor of his students. He is Chairman of the Undergraduate Program in Economics, and he teaches a course each year for College students. He also currently teaches the introductory macroeconomics course for graduate students in economics.
Commenting on the record of Nobel Prizes won by his colleagues at the University, Lucas said, "I am very proud to be part of this tradition at Chicago. And I am certain there will be more to come."
Robert Fogel, the Charles R. Walgreen Distinguished Service Professor in the Graduate School of Business and winner of the 1993 Nobel Memorial Prize in Economic Sciences, said, "This is terrific. Many of us thought the prize for Bob was long overdue. His approach to macroeconomic development set off an enormous chain of research which has since become the standard way of approaching this set of problems."
Sherwin Rosen, the Edwin A. and Betty L. Bergman Distinguished Service Professor of Economics, said that Lucas' work has had a crucial effect on economic thinking.
"Conventional macroeconomists only thought about what was happening at the current time, and not what effect macroeconomic policies might have on the future," Rosen said. "Lucas' model of rational expectations says that if citizens anticipate the reactions of policy-makers in the future, then they are going to change their behavior now in a way that could make those policies less effective -- or completely nullify a policy's effect.
"The effect of his work is to really change the way economists think about macroeconomics," Rosen said. "It kind of destroyed the Keynesian model. This really took a lot of the thunder out of the Keynesian way of thinking."
The theory of rational expectations is based on the belief that people make economic choices based on their previous experiences and their rational expectations of the results of those choices. The theory was created in 1961 by John Muth, but it was given much greater prominence during the 1970s when Lucas and his colleague, Thomas Sargent, the David A. Rockefeller Professor in Economics and also an economist at the Hoover Institution, applied it to the economy as a whole.
Lucas has also recently been studying economic development and ways to describe that development in a consistent way for both developing and advanced economies. One result is a paper, based on research by Nancy Stokey, Professor in Economics, that suggests nations prosper because their industrial workers apply knowledge they have learned in previous jobs as they produce new types of goods.
For further information about Lucas' achievements, see the World Wide Web page of the Royal Swedish Academy of Sciences (http://www.nobel.se/announcement95-economy.html).
Lucas received his A.B. in history in 1959 and his Ph.D. in economics in 1964 from the University. He was Lecturer in Economics at Chicago from 1962 to 1963 and a member of the faculty at Carnegie Mellon University from 1963 to 1974. After spending a year as Ford Foundation Visiting Research Professor of Economics at the University, he was named Professor in Economics at Chicago in 1975.
He was Chairman of Economics from 1986 to 1988 and was named editor of the Journal of Political Economy in 1988, a post he continues to hold. He has been vice president of the American Economic Association since 1987. Lucas is a member of the National Academy of Sciences, a fellow in the American Academy of Arts and Sciences and second vice president of the Econometric Society.
Among Lucas' books are Rational Expectations and Econometric Practice (1981), which he co-edited with Sargent; Studies in Business-Cycle Theory (1981); Models of Business Cycles (1985); and Recursive Methods in Economic Dynamics, which he published in 1989 with Stokey and Edward Prescott.