8/6/2019 1995 Oct Surprising and Nobel Rejections

1/2

Surprising and Nobel rejectionsThe announcement that Robert Lucas of the University of Chicago had wonthe Nobel prize last week came as no surprise to most economists. Theirony, not lost on many commentators, was that this lack of surprise wasconsistent with the "rational expectations hypothesis," applications of whichearned Lucas his award. This hypothesis says that agents learn to forecastthe future with only the truly surprising influencing their behaviour. So by

being unsurprised, economists had seemed to form a rational expectationregarding the identity Nobel prize winners.

But such expectations were not always held by economists. They certainlywere not present twenty five years ago when the editor of the American

Economic Review ( AER) rejected Lucas' seminal paper, "Expectations andthe Neutrality of Money," that contained his main Nobel contribution. That paper criticised the conventional wisdom that policy-makers were able tostabilise the economy by selectively altering monetary and fiscal policy.Lucas argued that consumers and firms would come to rationally anticipate

policy reactions so that only surprising changes in policy direction wouldaffect their behaviour. Without a definitive link between policy and

behaviour changes, how could governments hope to guide themacroeconomy in any consistent manner.

Despite the bold implications of Lucas' analysis, the editor of the AER foundthe results known and hence, unsurprising (!) with any contribution lyingwith the technical analysis rather than substance. The referee (an expert inmonetary theory) doubted that the idea would have a wide appeal.

Lucas was incensed by the rejection and wrote a scathing reply to the editor.He defended his need to resort to technicalities and complex mathematics.He accused the AER of becoming like Newsweek , commenting, "if uncertainty is, as well all seem to agree, crucial to the short-term effects of monetary changes, then sooner or later we are going to need theories inwhich random shocks explicitly appear, in which agents act rationally on the

basis of well-defined information, and so on. If this leads to integralequations (and, as I show, it does), so be it." The editor was unrelenting andLucas went on to publish the paper in the more technical Journal of

Economic Theory .

Two decades on and papers are likely to be rejected by the AER if they do not have integral equations and the like. This, a past generation of economists might have seen as a particularly surprising, and maybe

disturbing, occurrence. But rejections of work in economics that later wenton to be of Nobel prize winning quality is a common occurrence. Just ask

8/6/2019 1995 Oct Surprising and Nobel Rejections

2/2

past winners like Paul Samuelson, Gary Becker, John Nash and WilliamSharpe along with potential future ones, George Akerlof and Paul Krugman.Perhaps we should now rationally expect our best economic ideas to berejected, regardless of their mathematical content. That might ease the pain.

Joshua Gans Lecturer in the School of EconomicsUniversity of New South Wales

This article originally appeared in the Australian Financial Review , 25thOctober, 1995, p.19. It was based on an article written by George Shepherdand myself, "How Are The Mighty Fallen: Rejected Classic Articles ByLeading Economists," (with George Shepherd), Journal of Economic

Perspectives , Vol.8, No.1, Winter, 1994, pp.165-179. That article contains

accounts of various rejections in economics. It was expanded by GeorgeShepherd into a book on the subject entitled Rejected! Leading Economists

Ponder the Publication Process published by Horton in 1995.

http://www.afr.com.au/http://www.afr.com.au/