The Curse of Mammon

In economics, “the winner’s curse” describes the stampede mentality that can inflate values in heated bidding contests, so that a victorious bid is really a loss. But the phrase could also title an “Unsolved Mysteries” segment on the uncanny bad luck that seems to dog Nobel Prize winners in economics. From the case files:

1995: Thanks to a clause presciently inserted by his ex-wife into their divorce settlment nearly seven years before, University of Chicago economist Robert E. Lucas Jr. had to split his $1 million Nobel winnings with his former spouse. The award came a few weeks before the settlement was due to expire. “A deal is a deal,” a philosophical Lucas told the Chicago Tribune.

1996: Columbia University economist William S. Vickrey died of an apparent heart attack a mere three days after winning the Nobel for his work in “asymmetric information” (decision-making with incomplete data). In an ironic twist, Vickrey, who shared the prize with James A. Mirrlees, had also researched ways to ensure fairer prices at auctions and thus buffer “the winner’s curse.”

1997: Less than a year after Myron S. Scholes and Robert C. Merton shared the 1997 prize for developing mathematical risk-management formulas, the Fed intervened to stanch the billions hemorrhaging from Long-Term Capital Management, a high-flying hedge fund the pair operated with other managers. Experts attributed the debacle in part to the free rein afforded star financial names.

1999: Robert Mundell, a Columbia University professor whose advocacy of supply-side economics won favor with Reagan era conservatives, took the 1999 prize for insights into international capital flow. Mundell’s work presaged globalization and the creation of the euro--which entered a precipitous decline soon after the award.

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Compiled from Los Angeles Times news reports, www.TheStreet.com, www.about.com, Agorics Inc. and Associated Press