Harry
Max Markowitz (born August 24,
1927) is an American economist, and a recipient of the 1989 John von Neumann Theory
Prize and the 1990 Nobel Memorial Prize in Economic Sciences. Markowitz is a
professor of finance at the Rady School of Management at
the University
of California, San Diego (UCSD). He is best known for his
pioneering work in modern portfolio theory,
studying the effects of asset risk, return, correlation and diversification on
probable investment portfolio returns. Harry Markowitz was born to a Jewish family, the son of Morris and Mildred Markowitz. During high school, Markowitz developed an
interest in physics and philosophy, in particular the ideas of David Hume, an interest he continued to follow during his
undergraduate years at the University of Chicago.
After receiving his Ph.B. in Liberal
Arts, Markowitz decided to continue his studies at
the University of Chicago, choosing to specialize in economics. There he had
the opportunity to study under important economists, including Milton Friedman, Tjalling Koopmans, Jacob Marschak and Leonard Savage. While still a student, he was invited to
become a member of the Cowles
Commission for Research in Economics, which was in Chicago at the
time. He completed his A.M. in Economics from the university in 1950. Markowitz
chose to apply mathematics to the analysis of the stock market as the topic for his dissertation. Jacob
Marschak, who was the thesis advisor, encouraged him to pursue the topic,
noting that it had also been a favorite interest of Alfred Cowles, the founder of the Cowles Commission. While
researching the then current understanding of stock prices, which at the time
consisted in the present value model
of John Burr Williams,
Markowitz realized that the theory lacks an analysis of the impact of risk.
This insight led to the development of his seminal theory of portfolio allocation
under uncertainty, published in 1952 by the Journal of Finance.
In 1952, Harry Markowitz went to work for the RAND Corporation, where he met George Dantzig. With Dantzig's help, Markowitz continued to research optimization techniques,
further developing the critical line algorithm for
the identification of the optimal mean-variance portfolios, relying on what was
later named the Markowitz frontier. In
1954, he received a PhD in Economics from the University of Chicago with a thesis on the portfolio theory. The
topic was so novel that, while Markowitz was defending his dissertation, Milton
Friedman argued his contribution was not economics. During 1955–1956 Markowitz spent a year at the
Cowles Foundation, which had moved to Yale University, at the invitation of James Tobin. He published the critical line algorithm in a
1956 paper and used this time at the foundation to write a book on portfolio
allocation which was published in 1959.
Markowitz won the Nobel
Memorial Prize in Economic Sciences in 1990 while a professor
of finance at Baruch College of
the City University of New
York. In the preceding year, he received the John von Neumann Theory
Prize from the Operations
Research Society of America (now Institute for Operations Research and the Management Sciences, INFORMS) for his contributions in the theory of three fields:
portfolio theory; sparse matrix methods; and simulation language programming (SIMSCRIPT). Sparse matrix methods are now widely used to solve
very large systems of simultaneous equations whose coefficients are mostly
zero. SIMSCRIPT has been widely used to program computer simulations of
manufacturing, transportation, and computer systems as well as war games.
SIMSCRIPT (I) included the Buddy memory allocation method,
which was also developed by Markowitz. He was elected to the 2002 class
of Fellows of the Institute for Operations Research and the Management Sciences