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On George A. Akerlof’s first day as an assistant professor at UC Berkeley 35 years ago, a colleague asked him to name 10 economic ideas he was interested in pursuing.  

On Wednesday of this week, Akerlof’s ninth idea earned him academia’s highest accolade – the Nobel Prize.  

Like many great ideas, Akerlof’s ground-breaking economic theory, which was based on the used-car market, was formulated over a working lunch in a Berkeley restaurant. 

Recalling that lunch on Wednesday night as colleagues from all over the campus gathered to toast him at the Lawrence Hall of Science, Akerlof still seemed stunned at winning the award. 

With what colleagues described as characteristic modesty, he attributed his success in large part to the nurturing and open-minded environment at the Berkeley campus. 

“I owe everything to Berkeley,” Akerlof said. “It has been an excellent community which encourages creativity.” 

He said the economics department is a haven for innovative thinking. 

“It’s a friendly, collegial place, which values quality over quantity,” he said. 

Akerlof, 61, was named the 2001 co-winner of the Nobel prize in economic sciences on Wednesday in recognition of his watershed work called “The Market for Lemons: Quality Uncertainty and the Market Mechanism.” 

His paper, which was published in the Quarterly Journal of Economics, August 1970, showed how ill-informed buyers could undermine prices in the used-car market because they were suspicious that every car they looked at was a “lemon.”  

Sellers react by taking their quality cars off the market, because wary buyers aren’t willing to pay what the car is worth, and the quality of the market drops until it totally breaks down. 

His essay ran counter to conventional economic wisdom. It laid the foundation for a general theory of how people with differing amounts of information affect a wide range of markets. 

“His research was a big break from traditional economic theory with far-reaching implications in such diverse areas as health insurance, financial markets and the labor market” said David Romer, an economics professor at UC Berkeley. 

Professor Eugene Smolensky said this year’s award, along with the one Ackerlof’s colleague Daniel McFadden won last year for work on the development of statistical tools that measure individual decision-making, was recognition for an important new direction in economic thinking. 

“Their work is rooted in markets as they actually operate rather than in some idealized notion of how they operate,” said Smolensky, an economist and former dean of UC Berkeley’s Goldman School of Public Policy.  

“That notion was good enough when economists were asking if capitalism was better than socialism. Now that we are more interested in predictions about real world behavior, Ackerlof and McFadden have given us the theory and the tools to understand it.” 

Gia Calvillo, a doctoral student who worked under Akerlof during her first year, said her now-famous professor is a wonderful, creative and open minded person. 

“The first semester (for a graduate student) is brutal,” she said. “If it wasn’t for him I might have quit.” 

Despite the worldwide acclaim surrounding his Nobel Prize, Akerlof has remained modest about his achievements. 

The day he won the prize, he went to teach his afternoon seminar at the Department of Economics as usual. A French scholar made a presentation about income inequality in the United States, and professor Akerlof sat among the students and took part in the back and forth as they debated the idea. 

Today, when Akerlof meets with a fresh batch of graduate students for the first time, he remembers how he got his start at Berkeley. 

He always asks them to think of 10 ideas that they want to investigate. 

“He has always devoted his energy to teaching students how to be creative and think outside of the box,” Calvillo said.