Speaking at the UChicago news conference, Alivisatos said he had read Diamond’s and Dybvig’s groundbreaking paper and immediately understood why it had been so widely recognized: “It’s a beautiful work of art.”
The Nobel announcement also cited Diamond’s work on the function of banks as intermediaries between many savers and borrowers—pointing out their role in assessing borrowers’ creditworthiness and the likelihood of success of their investments, and in monitoring the health of current investments.
The majority of his career has been dedicated to financial stability, Diamond said. “So given that those issues of stability in the financial system are still very important, I’m very happy this was acknowledged.”
‘An amazing place’
Diamond joined Chicago Booth’s faculty in 1979.
“The University of Chicago has been an amazing place to keep trying to do one’s best research, year after year after year,” he said. His work was subject to detailed comments by his colleagues, including those in other specializations, he said: “It forced me to think clearly about what I was doing and whether it made any sense.”
Diamond also cited working with students as a way to make sure his work, though theoretical, was useful to policymakers. “Having them question things turned out to be very useful as a value-add to figuring out how to do useful research,” he said.
“Diamond and Dybvig’s research has significantly altered economic policy and the practical way in which the financial system is regulated—for example, much of the regulatory response to the global financial crisis has been informed by their work,” said Anil Kashyap, the Stevens Distinguished Service Professor of Economics and Finance at the University of Chicago Booth School of Business and a longtime colleague of Diamond’s.
“This is really what the University, in so many ways, is all about,” Alivisatos said. “We’re here, in countless ways, to address some of the greatest challenges that face society.”
Diamond’s other highly cited works include “Monitoring and Reputation: The Choice Between Bank Loans and Directly Placed Debt” in the Journal of Political Economy in 1991, and “Liquidity Risk, Liquidity Creation and Financial Fragility: A Theory of Banking” in the Journal of Political Economy in 2001. The latter was co-written with Chicago Booth Prof. Raghuram G. Rajan, with whom Diamond has written a series of influential papers on banking and financial crises.
Diamond is associated faculty in the University of Chicago’s Kenneth C. Griffin Department of Economics, teaching in its doctoral program. He has taught at Yale University and was a visiting professor at the MIT Sloan School of Management, the Hong Kong University of Science and Technology, and the University of Bonn.
He is also a research associate of the National Bureau of Economic Research. He has served as president of the American Finance Association and the Western Finance Association, is a member of the National Academy of Sciences, and is a fellow of the Econometric Society, the American Academy of Arts and Sciences, and the American Finance Association.
Diamond earned a bachelor’s degree in economics from Brown University in 1975. He earned master’s degrees in 1976 and 1977 and a Ph.D. in 1980 in economics, all from Yale University.
He has been married to fellow economist Elizabeth Cammack Diamond, MBA'78, PhD'87, since 1982. They have two children.
Asked whether he thought the work should have received a Nobel Prize earlier, Diamond said no: “You don’t want to win it too young. It goes to your head.”