The transatlantic calls from Stockholm usually reach the West Coast in the middle of the night, rousing professors to tell them they’ve been elevated to Nobel laureates. But A. Michael Spence, professor emeritus and former dean of the Graduate School of Business, was able to sleep in a bit before he got the October 10 call—at his vacation home in Hawaii.
“It’s very exciting,” he told the first reporter, from the Associated Press, to ask him about the prize. “I think all of us in the academic world do what we do for the fun of it.”
As in game theory? That’s what Spence and his co-recipients of the 2001 Nobel Prize in economics—George Akerlof, professor at UC-Berkeley, and Joseph Stiglitz, a former Stanford colleague who now teaches at Columbia University—used in the 1970s to lay the groundwork for a theory about markets with so-called “asymmetric information.” By looking at how agents with different amounts of information can affect markets, they developed analytical tools that “form the core of modern information economics,” according to the Royal Swedish Academy of Sciences.
These tools have enabled researchers to explore such things as the risks faced by a lender who lacks information about the creditworthiness of a borrower or how people with inside knowledge of a company’s financial prospects can gain an edge over other investors. Spence’s work demonstrated how a well-informed market player—say, an auto dealer—could communicate a superior position (for example, by offering a warranty).
Spence, Stanford’s 16th living Nobelist, is the author of three books and about 50 articles in professional journals. He graduated summa cum laude from Princeton with a degree in philosophy, earned a second bachelor’s degree as a Rhodes scholar at Oxford and received his doctorate from Harvard. He taught in Stanford’s economics department from 1973 to 1975, then returned to Harvard as a professor of economics and business administration. In 1984, he became dean of Harvard’s faculty of arts and sciences, and in 1990 he rejoined Stanford as dean of the GSB. After stepping down from that post in 1999, he joined Oak Hill Capital Partners and Oak Hill Venture Partners, where he has managed a number of high-technology investments. He continues to teach at the Business School and recently co-developed a course on e-commerce.
