Get rich or get famous? Edward Thorp vs Myron Scholes

Economist Writing Every Day

When finance professors publish papers claiming to find inefficiencies in asset markets, my initial reaction is skepticism. The odds are stacked against them to start since asset markets are mostly efficient. Then even if the inefficiency they found is real, shouldn’t they keep that fact to themselves and get rich trading on it?

But listening to a recent interview with Edward Thorp, I realized I shouldn’t entirely discount the possibility that someone would publish a real inefficiency, even a tradeable one. After all, Myron Scholes and Fischer Black did just that when they published the Black-Scholes model in the Journal of Political Economy. This made them famous on Wall Street and in econ/finance academia, and won Scholes the 1997 Nobel Memorial Prize in Economics.

Thorp explained that he had come up with a similar model years earlier, but instead of publishing it, he started a hedge fund and…

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