Michael Spence, along with george akerlof and joseph stiglitz, received the 2001 Nobel Prize “for their analyses of markets with asymmetric information.” Spence’s particular focus was on information about workers’ productivity. Assuming that a worker knows more about his productivity than a potential employer knows, Spence showed how it can make sense for highly productive workers to “signal” their productivity by getting formal education. This insight may sound basic, but until Spence’s work, economists had not had the insight—or at least had not thought through it rigorously. A large part of human behavior is signaling, whether it be in the clothes and watches we wear, the cars we drive, the beer we drink, or the degrees we earn.
Spence earned his B.A. in philosophy from Princeton University and his Ph.D. from Harvard in 1972. He was a professor at Stanford from 1973 to 1975, a professor at Harvard from 1975 to 1984, dean of arts and sciences at Harvard from 1984 to 1990, and dean of Stanford Business School from 1990 to 1999.