Harker Aquila reporter Shay Lari-Hosain conducted a phone interview with 2013 Nobel Laureate in Economic Sciences.

Shay Lari-Hosain So first I just wanted to start off with how you would explain your contributions to economics to high school students?

Dr. Lars Peter Hansen Let me try to boil it down to this: I do work on the use of statistical methods to understand models that link markets to what economists call the macroeconomy; what goes on with the economy at large. Economists are really into building models of stuff, so we can imagine building up a fully fleshed-out model of the macroeconomy, you can build up a fully-fleshed out model of the financial markets. Now that requires a lot of input and a lot of knowledge which we don’t really fully have, and so it’s nice to have statistical methods that allow you to study the linkages between financial markets and the macroeconomy without having a fully fleshed-out model of everything. They’re kind of methods that allow you to do something without everything.

SL What skills do you think have been important to your success?

LPH I had a pretty atypical trajectory. My last two years of high school, my parents moved me, and they were very hard years. I was projected by guidance counselors to just be an okay student in college. My high school performance was very inconsistent; there were a couple teachers that picked up on that I might have a little bit of talent. I went to the local university, Utah State University. The university experience was very good for me. But what’s really valuable, especially earlier on, is to just get skills that give you flexibility. I think analytical skills are very handy for me. The side of mathematics that involve thinking and reasoning can be tremendously valuable. Lots of fields use mathematics, they use statistics, and you don’t want lack of knowledge of that stuff to get in the way of progress. Not everyone’s going to be analytical and quantitative; but get some type of core basic sets of skills, and find a flexibility. It was very hard to, at least it was for me as a high school student, to guess what was going to happen to my future career. Having some core skills like flexibility allowed me to end up pursuing the stuff I wanted to.

SL What inspired you to enter the field of economics?

LPH In college, I initially was working in a chemistry lab and was a chemistry major, but I didn’t like lab work all that much; I knew that that was not going to be a good match for me. I started taking math classes; I actually enjoyed college math more than high school math; mathematics in high school is sometimes taught in very mechanical ways, and it makes it, to me, less interesting. When it’s more teaching you how to think and analyze in a systematic way, it’s much more interesting. I started taking some math classes, and I eventually got a mathematics major. My junior year I took my first economics class, and by my senior year my professors had me in the Ph.D program in economics. They designed a very accelerated curriculum to get me ready for graduate school. I just had maybe three key professors that were very important to my development at the university.

SL I understand there is a polarization between Dr. Fama and Dr. Shiller; so who would you gravitate more towards in terms of their analysis of markets?

LPH The [areas] that are polarized are the places in which the amount of basic evidence we have is weak. When it’s not so strong, then it leads to a much broader range for interpretation. If you look at the common theme of all of our work, I think all of us are looking at financial market data in new and different ways that challenge a lot of the conventional models of our day. Both Eugene [Fama] and I years ago were studying foreign exchange markets. Gene did some exceptional work. We were exposing problems with the existing model in order to improve the models. It’s not just the markets, but the consequences of the markets. To some extent, both Gene and I have been attracted to models that impose some degree of rationality on investors. Models are a simplification, an abstraction. Nobody thinks that all investments are fully rational. That’s just a simplification in order. When we know that model is false, the real question is, is it false in really important ways? Or is it false in ways that aren’t so consequential? So for me it’s all about evidence. It’s all about models.