IU graduate Philip Dybvig was awarded the 2022 Nobel Prize in Economic Sciences on Monday for his work studying the role of banks in the economy.
Dybvig graduated from IU with bachelor's degrees in math and physics in 1976, before earning his master’s degree and Ph.D. in economics at Yale University, according to his Washington University in St. Louis faculty page.
Two other economists were recognized alongside Dybvig: Ben Bernanke and Douglas Diamond. The three economists’ work revolutionized how society deals with a financial crisis.
Nearly 40 years ago, Dybvig and Diamond published a paper together that became of the most cited papers in finance and economics. The paper establishes the Diamond-Dybvig model, which demonstrates how banks serve the economy by creating liquidity, but this liquidity makes banks vulnerable.
Diamon and Dybvig explain how rumors of economic collapse can become a self-fulfilling prophecy by creating bank runs, when a bank's clients all demand their money back from the bank at the same time. The two authors also offer a solution through the idea of a government safety net, in which the government offers banks deposit insurance and even lends money to banks in times of crisis.
Since publishing this paper, Dybvig has taught at Princeton, earned tenure at Yale and published two textbooks, according to his faculty page. Dybvig now teaches at Washington University in St. Louis during the school year and runs a research program each summer in Chengdu, Sichuan, China.