Nobel Fever - The Economics Prize A Nod In Opposite Directions?

No Nobel fever has been broken out here at UnRisk. How should it, there are so many comments from economists .....

Concentrating on Eugene Fama and Robert Shiller, I recommend reading in MarginalRevolution

Tyler Cowen, Robert Shiller, Nobel Laureate - Eugene Fama, Nobel Prize Laureate
Alex Tabarrok, Robert Shiller Nobelist - Eugene Fama Nobelist

In a quick view it looks like giving the prize to Fama and Shiller is a nod in the direction of efficient and inefficient market theory or in other words antibehavioral and behavioral finance.

There is no free lunch

In its strongest form the efficient market theory says - excess returns are not predictable (even not for insider traders). There is no free lunch.
Fama's contributions shaped the way quant finance people think.
It feeds the skepticism that news and information can give us much better insight - I have pointedly expressed this in The Big Joke of Big Data. We model, calibrate and recalibrate.

Fama's contributions influence people in how to invest.

If all eggs are put into one basket - be patient and bet against

The initial finding that returns were not forecastable is true for short durations, but it is now clear that returns can be forecastable over longer horizons.
Shiller's models imply systematic returns to betting against the market and expecting some long-run mean reversion. This becomes quite obvious thinking of the fact that some investment strategies upend the price logic and drive markets away from equilibrium - but they will return (when bubbles burst).

Shiller is an advocates of derivatives to help individuals to better hedge their risk.

A prize for behavioral and antibehavioral finance - a funny decision? In a deeper look their contributions are not so contrary.

It's more refinement, and I like how this is expressed by Noah Smith: If Fama were Newton, would Shiller be Einstein?

The EMH works in some and not in other cases. It is definitely not a good guide for an economy.

What is especially interesting to us: how tight are market efficiency and computational efficiency linked - in concrete segments?

Tomorrow is physics Friday. Next week I hope to present our Agenda 2014. It seems early? We know already what we will do.