Uncertainty plays a large role in economics, but Dennis Epple, head of economics at Carnegie Mellon University's Tepper School of Business, has long felt confident about one particular outcome: that Lars Peter Hansen, a University of Chicago economist who started his career at CMU, would one day win the Nobel prize for economics.
That day came today, when the Royal Swedish Academy of Sciences announced it was awarding the $1.2 million Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Mr. Hansen, 60, and two other Americans who developed methods to study trends in stock, bond and house prices. Eugene Fama, 74, also of the University of Chicago, and Robert Shiller, 67, of Yale University, were the other recipients.
"We are delighted that it has now happened," said Mr. Epple, who is the Thomas Lord University professor of economics. "The importance of his contributions is such that we knew that he would get the prize."
Mr. Hansen, who received his doctorate in economics from the University of Minnesota, arrived at Carnegie Mellon in 1978 to take a job in the business school.
Mr. Epple was part of the committee that interviewed and hired him, and he remembered that "we were just tremendously impressed by him." His research interest was in developing methods to study how individuals make decisions when faced with uncertainty.
Mr. Hansen started at CMU as an assistant professor and two years later was promoted to associate professor.
"I believe that was the most rapid promotion in the history of Carnegie Mellon. If not, it was one of the very fastest," Mr. Epple said, noting that typically that step takes five or six years.
Mr. Hansen remained in Pittsburgh until 1981, when he moved to the University of Chicago. In 1982, he and CMU faculty member Kenneth J. Singleton published a paper that developed a new method of testing the practical relevance of economic theories. Mr. Hansen has gone on to demonstrate how the application of his methods can be used in studying how people trade off risk and return, Mr. Epple said. Carnegie Mellon celebrated the 25-year anniversary of that accomplishment in 2007.
Mr. Epple said his former colleague's methods have led to an understanding of asset pricing and have had wide application, including in the understanding of energy markets and the impact of tax policy. He called Mr. Hansen's contributions "really path-breaking."
"There's hardly a superlative that wouldn't apply," he said, adding that Mr. Hansen is a "terrific person as well."
Mr. Hansen's award makes him the ninth graduate or faculty member of the Tepper School of Business to win the economics prize, and the 19th Nobel winner affiliated with Carnegie Mellon.
The economics prize is the last to be announced this year by the Nobel committees. Unlike the prizes in medicine, chemistry, physics, literature and peace, which were created by the Swedish industrialist Alfred Nobel in 1895, the economics prize was added in 1968 by Sweden's central bank as a memorial to Nobel.
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This story originally appeared in The Pittsburgh Press. To log in or subscribe, go to: http://press.post-gazette.com/ First Published October 14, 2013 12:40 PM