Professor Chris Shannon is a leading theoretical economist.  She began teaching at UC Berkeley upon earning a PhD in Economics and a Masters in Mathematics from Stanford University.  Her advanced training in both fields and the nature of her work as a mathematical economist have poised her to serve on the faculty of both departments at UC Berkeley.

Professor Shannon looks at the way heterogeneity in preferences and tastes between agents aggregates and affects market outcomes.  As a theorist, her work does not hinge on data collection and regression analysis, but rather on rigorous mathematical proof which draws primarily upon real analysis and optimization theory (and often leaves her “staring into space”).  Theoretical work, she explains, is driven by a combination of introspection and dissatisfaction with assumptions made in existing literature.  Much of her research, which she acknowledges leans towards the most abstract end of the theoretical spectrum, is motivated by questioning how robust existing assumptions are to more general specifications of such determinants as preferences or production technology.  She admits that economic theory will always be an inexact science since it is impossible to know with certainty the values of parameters within a model.  For this reason, she finds it is even more important that theoretical models be specified as generally as possible so that their predictions will be robust to this inevitable imprecision.

Professor Shannon is strikingly unpretentious and helpful.  She patiently answered my barrage of questions about her work in particular and mathematical economics in general.  In the process, she offered advice about my thesis and even provided me with references to articles that might be pertinent to my interests.  Thus, it comes as no surprise that she would be happy to advise an undergraduate thesis next semester.

Being a theoretical economist, much of the work that Prof. Shannon does requires her to “sit around and think”, not go out and collect data and run regressions. Having a Masters in Mathematics and a PhD in Economics, it is not surprising that most of Prof. Shannon’s work involves mathematical modeling. Her take on theoretical economics is that it translates ideas about behavior into a model. The level of abstraction involved in theoretical economics is easily seen simply from the titles of some of her working papers: “Quadratic Concavity and Determinacy of Equilibrium” and “A Prevalent Transversality Theorem for Lipschitz Functions”.

For Prof. Shannon, here are no fixed ways of going about writing a paper or “coming up” with a theorem. However, one method that she uses is to start by looking at other models already available, asking how robust the assumptions and predictions of the model are. By asking open questions and finding loopholes, Prof. Shannon then devises her own theory. Many times, patterns are found from things that might seem disconnected and unrelated. Prof. Shannon then uses the patterns she finds to find a general equilibrium. One example she gave on using such methodology is in a working paper she co-wrote with Prof. Luca Rigotti entitled “Uncertainty and Risk in Financial Markets” where she looked at market predictions, where there are infinite number of commodities, and asked dynamic questions such as, “what are the effects of lifetime planning of individuals on savings and investments?” She then took an existing basic finance model (“Black-Scholes”) and queried its assumptions and predictions.

There is no one general question one could use in questioning models, but in that particular paper, Prof. Shannon asked: “What would happen if individuals perceptions are different from the standard? And how does it change standard predictions of market outcomes? And given that the assumptions have changed, can we still say that market outcomes are different?”

In theoretical economics, empirical findings and data are not as important. But there is a great deal of mathematical theory background needed to excel in this area. What draws Prof. Shannon to this field of economics is that the work she does can be applied to both interesting and varied problems, and she personally enjoys the rigorous, formal and abstract nature of the math involved.

Therefore, Prof. Shannon would be a suitable thesis advisor to anyone who wants to do a thesis involving mathematical modeling.