UC Berkeley professor Ulrike Malmendier was awarded the prestigious 2013 Fischer Black Prize for her research in economics at this year’s American Finance Association conference on Jan. 7.
Malmendier was the first woman to be awarded the prize, given in honor of Fischer Black, a Nobel Prize-winning economist. The award honors the top finance scholar under the age of 40 who best exemplifies a commitment to original research.
“It’s a pretty big deal,” said Haas School of Business Associate Dean Andrew Rose. “This award is as difficult or more difficult to win than the Nobel Prize.”
The award recognizes Malmendier’s work in behavioral economics, a field of economics concerned with looking at behavioral models that might explain the apparent lack of rational decision-making by individuals in economics and business finance. The field, by Malmendier’s admission, is just now entering the mainstream discourse of finance researchers.
Stanford University associate professor Stefan Nagel, who co-authored a paper with Malmendier entitled “Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking?,” commented further on the importance of behavioral economics and his colleague’s research.
“Behavioral economics is about trying to see if we can understand economic phenomena by looking at the question of whether people are always making rational decisions,” Nagel said. “We are looking at factors that might affect the idealized calculating machine that traditional economic models assume.”
By “idealized calculating machine,” Nagel refers to the common economic assumption that agents in economic models behave rationally.
Campbell R. Harvey, a professor of international business at Duke University, presented the award for the AFA and cited “Depression Babies” as a key example of Malmendier’s creativity and originality in her research.
“The idea of the paper is to test the idea that the environment you live in impacts your risk-taking, so people that experience the Great Depression have different risk attitudes than those that did not,” Harvey said.
While Malmendier’s results have been proven anecdotally, the results of her paper were also statistically supported, which, according to Haas finance professor Terry Odean, is not an easy task.
“Using surveys of consumer finance data, (Malmendier and Nagel) show that people that have experienced a low stock market return environment through(out) their lives are significantly less willing to take financial risk,” Harvey said.
Harvey also cited Malmendier’s research on CEOs and how overconfidence might produce rash decisions, saying that this research provided convincing evidence that individual CEO characteristics, like measured overconfidence, cause distortions in investment behavior.
“We wanted to look at the idea of optimum decisions and how psychological biases affect economic decisions,” Malmendier said.
Malmendier earned her doctorate in business economics from Harvard University in 2002 and currently holds faculty positions in the UC Berkeley department of economics as well as in the Haas School of Business. She credited UC Berkeley’s vibrant academic community for her success.
“Berkeley is heaven for studying behavioral economics,” Malmendier said. “Nowhere else is there more interest or resources.”
When asked if the prize included any extra money for research, Malmendier laughed.
“No, no money involved,” she said. “Just honor.”