Students, faculty and the local community filled the Cole Assembly Room beyond capacity; many people in attendance occupied staircases and entranceways as a result.
"Contemporary economics is criss-crossed by his footprints," said Professor of Economics Frank Westhoff, while introducing Stiglitz.
Thursday's talk challenged neoclassical economic models by evaluating the role of imperfect information.
"So long as imperfections are not too great, traditional models will provide a glimmer of information," Stiglitz said. "[However] this theory is not robust ... Very small [information] imperfections may lead to monumental disasters."
Much of Stiglitz's lecture concerned economic complications caused by asymmetric information. Asymmetric information occurs when information is distributed unevenly across a market, often to the detriment of consumers who lack information and the expertise necessary to evaluate it. Examples of asymmetrical information included student performance, capital markets and consumer products, all instances that require accurate information, according to Stiglitz.
Stiglitz highlighted both the incentives to hide and to reveal information in a market structure. For example, insurance markets exist because of public uncertainty regarding the threat of disease. According to Stiglitz, if tests were available to provide perfect information that confirms or refutes the presence of disease, the market would be destroyed. In fact, it "would lower social welfare," he said.
Many of Stiglitz's economic ideas are sparked by the gap between traditional models and what he sees. For example, Stiglitz dismisses Adam Smith's "Invisible Hand," a notion central to much of neoclassical economic theory. The idea suggests that markets act as if guided by an invisible hand, which directs economic activity towards a desirable outcome.
"The reason Adam Smith's invisible hand was invisible was because it wasn't there," said Stiglitz.
Several students said they were impressed by Stiglitz. "I found the Stiglitz lecture on information to be informative, interesting and, at times, humorous," said Conner Mulvee '05. "I think it would be hard to find a better lecturer on the topic."
On Friday, Stiglitz's lecture on globalization discussed International Monetary Fund (IMF) and World Trade Organization (WTO) policies and how they have affected various developing nations.
"The way globalization has been governed, the way the rules have been set, have not been fair to developing countries," Stiglitz said. "They have not been put on a level playing field."
Stiglitz analyzed macroeconomic decisions by the IMF in Ethiopia, Kenya and Argentina as they related to inflation, growth and budget balance. In some instances, he said, policies of deregulation were not practiced in accordance with common economic theory.
"The IMF restricted expenditure and increased interest rates during a recession ... everything you should not do," said Stiglitz.
He acknowledged similar problems in the WTO. Stiglitz suggested that externalities-negative or positive effects on a third party not involved in a transaction-are present in both organizations.
"The IMF has impacts that go beyond financial markets and the WTO has impacts that go beyond trade," Stiglitz said.
Despite relaying many of the negative effects of the IMF and WTO, Stiglitz suggested that their presence is necessary for now.
"If we abolish the IMF, it will be recreated with many of the same problems," Stiglitz said.
Stiglitz offered potential solutions to the problems associated with globalization. "One thing we can do is increase information so there can be more observation and control," Stiglitz said.
Ultimately, Stiglitz placed this responsibility in the hands of the United States.
"Where the real pressure needs to be put is on the United States government," said Stiglitz. "The U.S. has been one country lagging behind in these reforms."
Receptions in Porter Lounge follow both lectures, giving attendees the opportunity to talk with Stiglitz on a more personal level.
"The department reception made it easy to meet and speak with Professor Stiglitz afterwards-he's a really nice guy," said David Nuss '03.
Stiglitz served as chief economist and senior vice president of development economics at the World Bank from 1997 until 2000, the chair of the Council of Economic Advisors under the Clinton administration and has taught at Stanford, Princeton, Yale and All Souls College, Oxford. He is currently the John J. McCloy '16 Professor of American Institutions and International Relations at Amherst College and a professor of economics at Columbia University. In 1979, he was awarded the biennial John Bates Clark Award by the American Economic Association, given to the economist under age 40 who has made the most significant contributions to the field of economics.