Prix Le Monde Jeune Economiste 2011

Each year, Le Monde nominates a French economist for its Jeune Economiste Prize. The past winners are

(Some of those recipients are or were researchers at CREST. And Elyès is my colleague in Paris-Dauphine. When he is not minister in Tunisia!) The 2011 winner is Xavier Gabaix, who is professor of economics at NUY. I know nothing of his research and of its impact on Economics, nor do I want to to criticise the 2011 prize in any respect, however in a fairly bland and uninformative interview with Le Monde, Xavier Gabaix focused on the Zipf laws (connected with the Benford law I mentioned a while ago about the Iranian elections):

Pour la théorie économique classique, les phénomènes économiques se distribuent selon une courbe de Gauss (en cloche), et la modélisation raisonne généralement à partir de moyennes, d’agrégats. Or, la recherche a montré que, dans des domaines très variés, la distribution des objets, par exemple par rang de taille pour les villes ou par fréquence d’occurrence pour les mots d’un texte, obéit à des lois mathématiques comme les lois de Zipf, du nom du linguiste qui les a mises en évidence. Dans un article de Nature paru en 2003 et écrit avec des physiciens, j’ai montré que la fréquence des baisses boursières atteignant certains seuils (10 %, 20 %, 30 %) obéissait à la même loi mathématique que la fréquence des séismes… L’observation du volume de transactions boursières, de la taille des firmes, des évolutions de la croissance, permet également de déceler de telles lois de distribution.

which google-translates as

In classical economic theory, economic phenomena are distributed according to a Gaussian (bell) distribution, and modeling reasons usually based on averages and aggregates. However, research has shown that in various fields, the distribution of objects, for example in the size ranks of cities or in the frequency of occurrence of words in a text, obeys mathematical laws such as the Zipf laws, named after the linguist who has identified them. In a Nature paper published in 2003 and written with physicists, I showed that the frequency of stock market declines reaching certain thresholds (10%, 20%, 30%) obey the same mathematical law as the frequency of earthquakes .. . The observation of the volume of stock transactions, the size of firms, changes in growth, can also identify such distributions.

This somehow reminds me of the criticisms on the normal/Gaussian distribution in Nassim Taleb’s (outrageous) Black Swan. I would think the same type of criticism applies here: The interview mentions the fact that a few actors have a considerable impact on financial markets. This kind of observation applies to  an extreme value phenomenon. hence a particularly-difficult-to-estimate statistical problem. Especially given the lack of stationarity on those financial markets…

One Response to “Prix Le Monde Jeune Economiste 2011”

  1. I had the same feeling: a few years ago, a colleague working on finance wanted to use some of my results on tail dependence applied to financial data, and when I mentioned that exceeding distributions had to be Pareto (or Generalized Pareto), i.e. a power law, then he said “oh, you mean Gabaix’s law ? the one he published in Nature”.

    I have to confess that I find weird how people in finance rediscover ideas extremely natural for those who have looked at extreme valeue theory. Exactly as you said about Taleb…

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