November 01, 2017 – WHEN LIFE GAVE GEORGE AKELOF LEMONS, he turned them into a Nobel Prize.
The famed economist wrote a paper in 1970 about how the appearance of “lemons” in a particular market ─specifically, the used car market─ could negatively affect the quality of all products in the market. That paper, “The Market for Lemons: Quality Uncertainty and the Market Mechanism,” is considered a seminal work in the economic theory of information asymmetry. It earned Akerlof and his colleagues, Michael Spence and Joseph Stiglitz, the 2001 Nobel Prize in Economics.
Today, Dr. Akerlof is a professor emeritus at Berkeley, a senior resident scholar at the International Monetary Fund, and a University Professor at Georgetown’s McCourt School. He will teach about when and how economics should be applied to public policy and how to tell whether an economist is being insightful or overzealous.
He’s also writing a book with fellow Nobel laureate and Yale economics professor Robert Shiller. Called Phishing for Phools, the book blends the fields of psychology and sociology with economics. The underlying argument is that “the capitalist system doesn’t give us what we actually want, but it gives us what it thinks we want insofar as what can be produces as profit, “he says. It explains why so many Americans have a difficult time living within their means and are easily influenced to purchase products they don’t need ─and also explains the underlying reason for the financial crisis of 2008.
Akerlof has explored the link between psychology and economics before. Identity Economics: How Our Identities Shape Our Work, Wages, and Well-Being, co-written with Duke Economist Rachel Kranton in 2010, created a field of economics based on the idea that people make choices according to their concept of self. In the book, Akerlof talks about the stories people tell themselves to justify and motivate their decisions, beyond just the monetary reasons. Phishing for Phools applies this theory, using psychological and sociological approaches to analyze why people make certain decisions. He plans to weave his new research into his McCourt School curriculum.
“We are honored to have Dr. Akelof join the McCourt School,” said Dean Edward Montgomery. “Our students will have access to one of the most original thinkers in the field of economics today, whose research and teaching will greatly enhance their public policy training.”
“It’s a privilege to welcome such a distinguished scholar and committed professor into our Georgetown community,” said Georgetown University President John J. DeGioia. “Dr. Akerlof’s contributions to the field of economics have been extraordinary, and we look forward to the perspective and insight he will bring to the learning and scholarship taking place on this campus.”
It’s hard for Akerlof to turn off his scholarly brain ─everything he’s reading has to do with his research for Phishing for Phools. At home, he and his wife, fellow economist and Federal Reserve Chair Janet Yellen, debate topics related to their work. Their son, Robert, is also an economist, and teaches at the University of Warwick in England. Akerlof, too, grew up surrounded by academics. His father, grandfather, and great-grandfather were chemistry professors, and his mother also pursued graduate studies in chemistry. His life, he quips, is an example of identity economics in action.
He still remembers the day he got the call from Stockholm telling him he’d won the Nobel Prize. It was six in the morning in Berkeley. “I think they wanted to make sure I knew it wasn’t a hoax,” he says. “So they put on a friend of mine.” That day was also the 100th birthday of Berkeley’s first Nobel Prize winner, the physicist Ernest O. Lawrence. Akerlof became an honored guest at the celebration party for Lawrence.
“I was just very surprised,” he says. “You always think this is the type of things that might happen to somebody else, but not to you.”