Over the past century, six Stanford GSB professors have been awarded the Nobel Prize. Here’s a look at who they are — and why they won.
written by amara holstein
Front Image: Guido Imbens | Photo by Elena Zhukova. Back Image: William Sharpe in 1978 | GSB Archives
Established in 1968, the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel is awarded for scholarship that has proved foundational within the discipline. The award comes with 11 million Swedish kronor (about $1 million), as well as a gold medal, a diploma, and a lifetime of bragging rights. Here are the six prize winners from the Stanford Graduate School of Business.
William F. Sharpe
The STANCO 25 Professor of Finance, Emeritus (1990)
GSB Archives
CV: Prior to joining Stanford, taught at the University of Washington and the University of California, Irvine. Cofounded Financial Engines, an online investment advice and management firm.
Why He Won: The balance of risk versus reward is key when determining the profit potential of corporate stocks and bonds. How do you create a diversified portfolio for future gain based on current market conditions, taking into account a dynamic economy, as well as your appetite for risk?
In the 1950s, economist Harry Markowitz created an influential theory of portfolio selection. A decade later, Sharpe built on this to create the Capital Asset Pricing Model (CAPM), which evaluates the pricing of securities to assess potential risks and possible investment returns.
The GSB’s first Nobel winner, Sharpe shared the prize with Markowitz and Merton Miller, whose work focused on modern corporate finance theory. Together, the Royal Swedish Academy of Sciences said the trio “established the foundation for the field ‘Financial Economics and Corporate Finance.’”
Impact: Over the past decades, the CAPM has become the standard to which corporate, institutional, and pension fund managers adhere when planning and evaluating investments. It’s also become an important tool in practical research and risk premium assessment.
Michael Spence, then dean of the GSB (and future Nobel recipient), said that “no aspect of finance has been unaffected by Bill’s work.”
Getting the Call: Initially dubious of the pre-dawn call — Sharpe first thought it “was some chap in Belgium… who was trying to get me to speak at a conference” — he was quickly reassured after seeing the news on CNN. In Arizona for a conference, he and his wife celebrated by watching the sunrise over the desert “before everything broke loose and became crazy.”
The Frank E. Buck Professor of Finance, Emeritus (1997)
CV: Served in leadership roles at Long-Term Capital Management and Salomon Brothers, and taught at the University of Chicago and MIT’s Sloan School of Management.
Why He Won: For decades, markets struggled to determine the true value of options, given the many variables that can impact pricing. With his colleague Fischer Black, Scholes solved this problem with the groundbreaking Black-Scholes options pricing model, a formula to guide investors in valuations. Robert C. Merton demonstrated further applications of the model.
A key component of the trio’s approach was to show that it was not necessary to include a risk premium in option valuation. It wasn’t that the risk premium went away; rather, it was simply integrated into the stock price.
For creating “a new method to determine the value of derivatives,” Scholes shared the Nobel with Merton. (Black died in 1995 and was posthumously ineligible for the prize.)
Impact: Scholes, Merton, and Black helped lay the foundation for the modern options marketplace and their formula is used globally by thousands of traders and investors every day.
Their formula has reached far beyond financial economics. As The Economist noted in 1991: “Corporate strategists use the theory to evaluate business decisions; bond analysts use it to value risky debt; regulators use it to value deposit insurance; wildcatters use it to value exploration leases.” In fact, “the model can be used to examine any ‘contract’ whose worth depends on the uncertain future value of an ‘asset.’”
Getting the Call: Scholes learned he’d won the prize from his brother in New York, who had heard the news on a radio show while driving to work. Scholes told reporters that the announcement was “a tremendous shock.”
The Philip H. Knight Professor and Dean, Emeritus (2001)
GSB Archives
CV: Prior to Stanford, dean of the Faculty of Arts and Sciences at Harvard.
Why He Won: In a perfect model of a free market, buyers and sellers would be equally equipped to judge the quality and value of an item — and its price would reflect that. But in reality, many markets are characterized by “asymmetric information,” where people on one side of a trade are better informed than the other side. Spence, along with George Akerlof and Joseph Stiglitz, won the prize for their foundational work outlining a theory of markets with asymmetric information and creating analytical tools that the Royal Swedish Academy of Sciences said “form the core of modern information economics.”
Spence developed economic models that showed how knowledgeable agents could “signal” information to those with less information, improving market outcomes. For example, an appliance manufacturer could improve sales by offering a well-padded warranty, signaling the quality of an item beyond its sticker price; or shareholder dividends could signal profitability to drive up a firm’s share price.
Impact: Signaling theory and models with imperfect information have become key tools for social scientists and have influenced labor theory, business strategy, and market behavior.
“Mike’s fundamental insight lets us understand a huge range of real-world phenomena from the connection of earnings and education through competitive pricing to the use of apparently uninformative advertising,” noted John Roberts, the John H. Scully Professor of Economics, Strategic Management, and International Business, Emeritus, at Stanford GSB.
Getting the Call: Spence heard the news while on vacation in Hawaii. Upon his return to Stanford, a crowd of 200 students, professors, and alumni congratulated him with a champagne toast. “It’s kind of life-changing,” Spence said of receiving the prize.
The Adams Distinguished Professor of Management, Emeritus (2020)
Paul R. Milgrom
PhD ’79, Professor of Economics (by courtesy) (2020)
CV: Wilson has been on the GSB faculty since 1964. Three of his doctoral students have won the Nobel prize: Milgrom, Alvin Roth, and Bengt Holmström, PhD ’78.
Milgrom is the Shirley R. and Leonard W. Ely Professor and professor of economics in the School of Humanities and Sciences. Prior to Stanford, he taught at Northwestern University and Yale.
Why They Won: Mention auctions, and most people envision paddle-waving showdowns over high-priced art or crowds furiously bidding on cattle and cars. But it’s the nearly invisible auctions involving securities, minerals, energy, and public procurements that arguably have a greater impact on the general public.
Wilson and Milgrom won the prize for their improvements to auction theory, as well as their innovations to auction design. Wilson developed the theory around “common value” auctions, where the value of items is unclear before the auction but turns out the same in the end. He also explained the “winner’s curse,” or why people bid below the common value out of fear of paying too much. Milgrom built on these ideas, analyzing bidding theories to include common values as well as “private values,” amounts that vary by bidder.
Impact: Looking at items whose values are hard to determine, such as radio frequencies, Wilson and Milgrom created pricing schemes and bidding strategies that benefit sellers and buyers alike.
Their approach revolutionized the modern telecommunications industry. After the Federal Communications Commission approached them in 1994 to help rethink radio spectrum auctions, their new designs have been used around the world to issue more than $100 billion worth of licenses.
Their work “started out with fundamental theory and later used their results in practical applications, which have spread globally. Their discoveries are of great benefit to society,” said Peter Fredriksson, chair of the economic prize committee.
Getting the Call: Milgrom’s phone was on silent mode, so he missed the 2:45 a.m. call from the Nobel committee. He was unceremoniously awakened by Wilson — who lived across the street — enthusiastically pounding on his front door and shouting the news into Milgrom’s doorcam, which recorded the groggy conversation.
Robert Wilson, left, and Paul Milgrom | Photo by Elena Zhukova
Guido W. Imbens
The Applied Econometrics Professor and Professor of Economics (2021)
Photo by Elena Zhukova
CV: Also taught at Harvard, UCLA, and UC Berkeley.
Why He Won: Social scientists have long grappled with determining cause and effect. Randomized controlled trials can help. But they can be costly and time-consuming. And some questions can’t be practically or ethically answered by an experiment. As Imbens explains the challenge: “Once you move away from clear and crisp randomized experiments, what can you learn from observational data?”
Initiated as Saturday-morning brainstorms in a university laundromat with his colleague Joshua Angrist, those conversations eventually led to their seminal methodology on how to discern causation from real-world situations. Outlined in a 1994 Econometrica paper, their approach showed how to elicit lessons from natural experiments that mimic randomized control trials through their local average treatment effect (LATE) model.
Imbens shared the Nobel with Angrist; the other half of the prize went to David Card, who had examined core questions in labor economics using natural experiments.
Impact: Imbens and Angrist’s methodologies have been used extensively throughout the social sciences and have generated insights on the effective implementation of economic and social policies. Imbens’ ideas have also been integrated within scientific fields like epidemiology and medicine.
These theories of causality have “totally revolutionized the way we do empirical work,” said Eva Mörk, a member of the Nobel economic prize committee. According to Google Scholar, in 2024, Imbens’ work had been cited almost 12,000 times in other researchers’ work.
Getting the Call: “We didn’t actually think my dad was going to win,” said Imbens’ then 10-year-old daughter. When the call came, Imbens celebrated with his wife, fellow GSB economist Susan Athey, and their kids made breakfast for the reporters who descended on their home.
