Hansen, 60, is one of the co-founders of the Becker Friedman Institute at the University of Chicago, which builds on the legacy of Milton Friedman.
His work explores formal implications of dynamic economic models in which decision makers face uncertain environments. The main theme of his research has been to devise and apply econometric methods that are consistent with the probabilistic framework of the economic models under investigation. His work has implications for consumption, savings investment, and asset pricing.
“The choice of having Hansen complement the two extremes of efficient markets and inefficient markets is the perfect balance between the two,” said Andrew Lo, a professor finance at MIT’s Sloan School of Management.
Hansen’s development of econometric techniques for analyzing data and asset prices allows economists to test the various theories on what drives markets, he said.
The Nobel economics prize has in the past helped laureates achieve recognition for their theories outside academic circles, often bringing them closer to policy making. Past winners include Krugman, Amartya Sen and James Tobin.
Last year’s prize was awarded to U.S. economists Alvin E. Roth and Lloyd S. Shapley for their exploration of how to make markets work more efficiently by better matching supply with demand. In 2009, Elinor Ostrom became the first woman to win when she received the prize together with Oliver Williamson for investigating the limits of markets and how organizations work.
Annual prizes for achievements in physics, chemistry, medicine, peace and literature were established in the will of Alfred Nobel, the Swedish inventor of dynamite who died in 1896, and the first prizes were handed out in 1901. The economics award was set up by Sweden’s central bank in 1968.
The official name is The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. The money, 8 million kronor ($1.2 million), a gold medal and a diploma, will be presented to the laureates at a ceremony in Stockholm on Dec. 10, the anniversary of Nobel’s death.
Last week, Martin Karplus, Michael Levitt and Arieh Warshel were awarded the Nobel in chemistry. Francois Englert and Peter W. Higgs shared the physics honor, while James E. Rothman, Randy W. Schekman and Thomas C. Sudhof were awarded the 2013 Nobel Prize in Physiology or Medicine. The literature prize went to Alice Munro.
This year’s peace prize, awarded Oct. 11 in Oslo, went to the Organisation for the Prohibition of Chemical Weapons.
Since 2012, laureates have had to make do with 20% less in prize money than previous winners, a move the Nobel Foundation said in June last year was necessary to preserve its capital.
Today’s announcement of the economics prize marks the final award for this year.