The Nobel Prize in economics was awarded this year for an idea invented at MIT, and the Nobel Prize in physics was shared by a physicist who received his PhD at MIT. MIT faculty, former faculty, alumni and staff have now won 31 Nobel Prizes since 1956.
In economics, the $1 million prize was split between Professor Robert C. Merton, 53 (MIT PhD '70), now at the Harvard Business School, and Professor Myron S. Scholes, 56, now at the Stanford Business School. Professor Merton taught at the Sloan School of Management from 1970-88, while Professor Scholes taught at Sloan from 1968-73.
The physics prize, for devising methods to cool and trap atoms with laser light, was awarded to Dr. William D. Phillips (MIT PhD '76) of the National Institute of Standards and Technology, Professor Steven Chu of Stanford, and Professor Claude Cohen-Tannoudji of the College de France and the ������������������cole Normale Sup���rieure in Paris.
ECONOMICS
A formula which allowed the development of a $20 billion industry in options financing won the economics prize. Professors Scholes and Merton, working with the late Fischer Black of Arthur D. Little Inc. of Cambridge, developed an economic formula which allowed investors to take measures to balance the risk involved in an option to buy or sell shares at a particular price for a certain period of time. Dr. Black, who died in 1995 at the age of 57, was a professor at the Sloan School from 1975-84.
The formula, among other things, allowed a revolution in home mortgages, which can now be arranged at varying interest rates and varying periods of time, thereby allowing the mortgage to be refinanced if interest rates fall.
The Nobel Prize citation said, "Robert C. Merton and Myron S. Scholes have, in collaboration with the late Fischer Black, developed a pioneering formula for the valuation of stock options. Their methodology has paved the way for economic valuations in many areas. It has also generated new types of financial instruments and facilitated more efficient risk management in society."
Avinash Dixit, a professor of economics at Princeton University, commented, "If you ask what idea coming from economic research in the last 50 or 60 years has had the greatest impact on the world, this is it. Other developments have changed the way we think; this one changed the things we do."
Professor Scholes, then an assistant professor of finance at Sloan, was enlisted by Dr. Black, an applied mathematician, to collaborate on the problem of pricing warrants. Dr. Merton, then a graduate student working on parallel problems with MIT Professor of Economics Paul Samuelson, began working with Dr. Scholes and Dr. Black, and Dr. Merton contributed the idea that unlocked their original puzzle.
Upon learning of the prize, Professor Scholes said, "The first thing I thought of������������������ [was] 'I wish that Fischer was alive." Nobel Prizes are not given posthumously.
PHYSICS
William D. Phillips, one of the three co-recipients of the 1997 Nobel Prize in physics, received his PhD from MIT and did postdoctoral work at the Institute.
His thesis was actually a "doubleheader" on two different experiments, "either of which was worthy of a PhD," said Daniel Kleppner, his thesis adviser and the Lester Wolfe Professor of Physics.
Dr. Phillips shared the Nobel Prize for the "development of methods to cool and trap atoms with laser light," according to the Royal Swedish Academy of Sciences. These methods "have opened the way to a deeper understanding of the quantum-physical behavior of gases at low temperatures."
The work may lead to "the design of more precise atomic clocks for use in, e.g., space navigation and accurate determination of position. A start has also been made on the design of������������������ atomic lasers, which may be used in the future to manufacture very small electronic components." (The accomplishment of the atom laser was announced in January by a team led by Wolfgang Ketterle, professor of physics at MIT.)
Professor Kleppner, who is also the associate director of the Research Laboratory of Electronics (RLE), described Dr. Phillips as a "very warm, ebullient" person. "It makes one proud to be in a field with such a role model," he said.
The first part of Dr. Phillips' doctoral thesis is titled "The Magnetic Moment of the Proton in H20." The second part is "Inelastic Collisions in Excited Na." The work for which he received the Nobel Prize is unrelated to his thesis, which he conducted through the Department of Physics and RLE.
After completing his PhD, Dr. Phillips did postdoctoral work at MIT for two years. He worked for both Professor Kleppner and Professor David E. Pritchard, also of physics and RLE.
Professor Steven Chu of Stanford, one of the two other physics Nobel winners this year, will be on campus next spring to give the 1998 Herman Feshbach Lectures in Physics. He was invited to give the series of three talks before winning the Nobel Prize.
The Feshbach Lectures, hosted by the Physics Department, honor Institute Professor Emeritus Herman Feshbach. The exact dates of the 1998 talks by Professor Chu have yet to be determined.
A version of this article appeared in MIT Tech Talk on October 22, 1997.
