Research & Faculty
- Department of Accounting, Auditing and Law
- Department of Finance and Management Science
- Department of Economics
- Department of Strategy and Management
- Department of Professional and Intercultural Communication
- Center for Service Innovation
- Argentum Centre for Private Equity
- PhD
- Library
- Research & Publications
- Conferences
- Awards and Distinctions
World standards set by Hansen
Professor Terje Hansen reflects on winning the Frederick W. Lanchester Prize in 1973
Together with Professor Herbert E. Scarf of Yale University, Professor Terje Hansen was awarded the prestigious Lanchester prize in 1973 for their book "The Computation of Economic Equilibria". Hansen is the only Scandinavian to have won the prize.
The Lanchester prize is awarded by the Institute for Operations Research and Management Science (INFORMS), the leading professional and scholarly organisation in the field, for "the best contribution to operations research and the management sciences published in English". This esteemed award was established in 1954 in memory of Frederick W. Lanchester, one of the pioneers of the field of Operations Research.
Operations Research applies advanced analytical methods to help improve decision making processes. Techniques such as mathematical and computer modelling are used to analyse complex real-world systems and situations, giving executives the power to make more effective decisions, build more productive systems and optimise performance. The term Management Science is a near-synonym of Operations Research.
Set on the right path by Karl Borch
Hansen qualified with the Siviløkonom degree from NHH in 1963 and initially started a career in banking. After a year and a half at Bergens Privatbank, Hansen felt the lure of research and decided to go back to NHH to begin an academic career. NHH was not so strongly focused on research at this time but Professor Karl Borch stood out as an eminent researcher. "Borch was a spiritual leader for the younger researchers at the time", says Hansen, "He was an international figure in his field". It was due to the influence of Borch that people like Jan Mossin, co-founder of the Capital Asset Pricing Model, left NHH to pursue PhD studies in North America.
Borch proved to be a dominant factor in Hansen’s decision to leave NHH in the summer of 1965 and move to Yale with his wife to take a PhD. Hansen had missed the application deadline for the programme and Borch broke away from a trip to California to fly to Yale and personally ensure that Hansen was admitted into the programme. This shows the standing and influence that Borch held in the international academic community. It also shows the care and attention he took for promising young researchers at NHH.
Learned amongst the best
Many of the professors that taught Hansen at Yale were leading lights in the field of economics. Three of Hansen’s professors at that time subsequently went on to receive the Nobel Prize for Economics, including Professor Tjalling C. Koopmans (Nobel Prize 1975) that Hansen himself worked closely with.
The atmosphere at Yale was special. As Hansen recalls, "It was a very prestigious place to study. A high calibre of work was produced and high expectations were held for students." A term paper from one of Hansen’s doctoral courses at Yale was subsequently published in the International Economic Review.
Hansen chose Equilibrium Theory for his doctoral work, with Professor Herbert E. Scarf as his advisor. The work was highly mathematical and focused on developing methods for calculating equilibrium in an economy. It was common for PhDs to take 6 years to complete at that time but, as with many other Norwegians that went to the US to study, he completed it in 3 years due to funding constraints.
World class research from Bergen
Although sorely tempted to remain in the US, Hansen chose to come back to Bergen after completing his studies. He was appointed an Assistant Professor in 1968 and then became a Professor in 1972. Hansen retained his links with Yale after returning to Norway, being appointed a Research Fellow at the Cowles Foundation. This position carried no salary, but enabled Hansen to continue working with some of the best talent in Economics research in the world.
The continued cooperation with Yale lead to Hansen’s collaboration with Scarf on the Lanchester Prize winning book "The Computation of Economic Equilibriua". Scarf had developed a concept for calculating equilibrium prices, but it was very complex and not overly useful. Hansen had worked on this area in his thesis and he developed a method for calculating equilibrium prices that was much more practical than the one developed by Scarf. The book was a presentation of joints works in the area and practical applications of the method. It was cited by INFORMS as presenting "the first comprehensive treatment of an idea, currently under intense development, which permits the constructive computation of approximate fixed points of continuous mappings".
Riches to dream of
Close cooperation with the faculty at Yale continued in other areas as well. In an anecdote from this period, Hansen recalls being asked to present a model he had developed of stock markets to the US investment bank Morgan Guaranty Trust, better known as JP Morgan Chase today. It had taken weeks to test the model and Hansen’s newly married research assistant, Lars Mathiesen - now Professor and Prorector at NHH, had to sleep in the computer room to make sure that the programme was restarted every hour. The model worked very well with the US market when tested and, after working his way through a series of screening meetings with consultants, Hansen found himself in the executive dining room on the top floor of the Manhattan Headquarters of the bank. After the half hour meeting had stretched to several hours, the directors of the bank were so impressed that they decided they wanted the model. Hansen smiles now when remembering taking a trip to one of the world’s most exclusive jewellers, Tiffany’s, straight after the meeting to buy his wife a present, convinced that he was on the verge of the deal of a lifetime. Unfortunately the stock market crashed shortly afterwards and Morgan Guaranty Trust were no longer interested in models of the stock market.
Creating value for Norwegian businesses
On returning to Bergen, Hansen realised that many of the elements of his model could work in the field of advertising and he redesigned his model and presented it to Lilleborg. The essence of the new model was to help management allocate money to different advertising mediums to maximise the effect. The model was such a success for Lilleborg that the company later used it for many years and felt that it was a major contribution to their success in beating the globally dominant Colgate in the Norwegian market. Another application of the model to a correspondence school led to a break down of their registration system due to the unexpectedly high volume of new applicants.
The successful practical application of the model to advertising in Norway presented Hansen with another problem. He had started earning some money from royalties paid by the companies using his model, and this additional income was taxed at the punitive rate of 75%. Hansen therefore became interested in investigating the Norwegian tax system, and moved away from his previous focus on economic equilibria to his current research focus on tax and personal finance.
Head west, young scholar
Reflecting back on his time at Yale, and the work he has done in subsequent years, Hansen remarks that practically all of the NHH graduates that went to the US in the 1960s and 1970s to take PhDs went on to distinguish themselves in their fields. "It was a hard life", says Hansen, "We worked six and a half days a week, under high stress as we didn’t know if we would succeed". Not all of them returned to NHH, but those that did brought back new ideas and international contact networks. They also acted as flag carriers for NHH, spreading the name of the school internationally and setting a high standard for the quality of NHH graduates.
Hansen still advocates sending some of the promising graduate students at NHH overseas to take their PhDs, because of the high quality of doctoral programmes at the best US universities. He believes that the benefits to both the students and NHH can be immense. The students develop an international outlook, new ideas and an international contact network that they can bring back to NHH. NHH benefits from the infusion of new ideas, the expanded network and the raised international profile. Even if the promising graduates do not return they can, like Nobel laureate Finn E. Kydland, still retain close ties with NHH and remain ambassadors for the school.
The habit of sending promising graduate students overseas to take PhDs has died off since the days of Borch, laments Hansen. He believes that perhaps it is time to renew the trend.
