Eugene Fama is known above all for his asset-pricing model; less well known publicly is that he is also a role model.
His asset-pricing model is called the Fama-French five-factor model, and it is his decades-long academic collaborator Kenneth French who paid tribute to his Nobel Prize-winning colleague for the example he has set personally and professionally.
Call it behavioral finance of another sort—since the two efficient markets proponents are intellectually at odds with the emerging field that applies psychology to economics.
The first lesson French, a professor at Dartmouth, derives from his University of Chicago colleague’s example involves the wise use of one’s time.
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This behavior is manifest in Fama’s injunction against pledging to do something later that one is unwilling to do now—you’ll probably be busy later too and regret the pledge; his resistance to deadlines—you should determine your own priorities; and the speed with which he offers feedback to students and colleagues:
“Quick feedback enhances a colleague’s productivity and sends a strong signal about the value Gene places on the colleague’s research,” French said of his colleague in remarks archived on Dimensional Fund Advisors’ website.
Fama also taught French to stay committed to high standards. This lesson was brought home when French suggested that a marginal candidate receive tenure, comparing the candidate to an already tenured faculty member of lesser productivity.
“You make enough mistakes by mistake, don’t make one on purpose,” was Fama’s reply.
On another occasion, after the death of a young friend, French commented on both the grief he felt and noted that the shock of his passing at such a young age caused him to reassess his own mortality. Fama’s response—“That’s OK. I saw a 94-year-old yesterday”—taught French the value of making statistically sound inferences.
A valuable professional lesson French has learned from his colleague and mentor is that models are just that—schema that simplify the world but which are themselves not reality.
“This insight implies that all interesting models are false and that most of the hypotheses people test in finance are also false,” French said in describing an attribute that bolsters his colleague’s empiricism and prevents his getting bogged down in theory.
Aiding this approach to economic modeling is Fama’s strong emphasis on keeping things simple.
“When writing papers, he works hard to make his logical arguments and statistical tests as simple as possible,” French said.
Another hallmark of Fama’s professionalism, and empiricism, that French describes is his command of the data. The University of Chicago professor will actually memorize the key data emerging from an empirical test. Indeed, when deciding whether to commit time to reading another text, he will evaluate its worthiness by first examining its tables.