Becker legacy found in DC target-date modeling

Gary Becker, recipient of the 1992 Nobel Memorial Prize in Economic Sciences, left behind a human-behavior approach to the study of economics, including a principle used to model target-date funds and defined contribution plan glidepaths.

Mr. Becker, 83, died May 3 in Chicago following a long illness. He was an economics and sociology pro-fessor at the University of Chicago.

While other academics studied broad economic trends, Mr. Becker's work focused more on human behavior on the premise that rational economic agents comprise society. One of his chief areas of study — human capital — serves as the basis of Morningstar Investment Management's modeling for life- cycle investments and target-date funds, said Hal Ratner, head of research at Morningstar, Chicago.

“The concept of human capital didn't originate with Becker, but it's most associated with him since he modeled human capital,” Mr. Ratner said. That modeling as an asset on a balance sheet, in turn, helps to model an investment strategy, he added.

Mr. Ratner said under the model, younger investors in DC plans have more human capital to spend through their life, and thus can make riskier, or more equity, investments, while older participants with less human capital to spend will need to be more conservative.

“If you buy ... the premise that human capital is important — and we think it's crucial — we think the concept of human capital is necessary to complete an investment portfolio,” Mr. Ratner said. “A lot of what (Mr. Becker) did has yet to see fruition,” he added. One of his legacies is that an investment adviser should get as much information as possible from an investor to determine his or her true human capital value, making any investment decision more sound, Mr. Ratner said.

Mr. Becker was a free-market devotee like his teacher and later colleague at the University of Chicago, Milton Friedman.

“Both of us were brainwashed by Milton Friedman,” said fellow U of C graduate Harry Markowitz, who received the Nobel prize in economics in 1990. Mr. Markowitz said the career path he took differed from Mr. Becker; Mr. Markowitz developed modern portfolio theory while Mr. Becker focused on individual and collective behavior.

“His specialty was "homo economicus,'” considering a variety of decisions considered deemed as rational or irrational behavior, Mr. Markowitz said.

Bruce Jacobs, principal and co-founder of Jacobs Levy Equity Management, Florham Park, N.J., also said Mr. Becker will be remembered for his work across multiple studies, from sociology to public policy.

“Gary Becker was a free-market economist who did path-breaking, cross-disciplinary work, extending economic analysis to human behavior and interaction, including behavior not driven by market economics,” Mr. Jacobs said. “He included altruism in his utility modeling, recognizing that individuals have many motivators. He applied his work to sociology and public policy, including family and labor economics. He did pioneering work recognizing the value of human capital, a reason why nations spring back after disasters.”

Messrs. Becker and Friedman were the only ones to have received both the Nobel prize in economics and the Presidential Medal of Freedom, the nation's highest civilian honor. Mr. Becker received his Nobel in 1992 and the medal in 2007; Mr. Friedman was awarded his Nobel in 1976 and the medal in 1998.

Mr. Becker will be remembered as one of “the foremost economics scholars of the 20th century,” Robert J. Zimmer, University of Chicago president, said in a statement on the university's website. “Gary was a transformational thinker of truly remarkable impact on the world and an extraordinary individual. He was intellectually fearless.”

The university in 2011 created the Becker Friedman Institute for Research in Economics, which combines studies in business, economics, social policy and law. Mr. Becker chaired the institute.

In 1996, Mr. Becker was named an adviser to the Cato Institute Project on Social Security Privatization, composed of 22 academics, money managers, insurance executives, economists and former government officials, to propose how to change Social Security to a private system from a government-run operation. ?

Mr. Becker is survived by his wife, historian Guity Nashat Becker; daughters Catherine Becker and Judy Becker; a sister, Natalie Becker; stepsons Cyrus Claffey and Michael Claffey; two stepgrandchildren; and two grandchildren.

The University of Chicago will announce details of a memorial service for Mr. Becker at a later date as well as where memorials to him can be sent, pending approval from the family, said Wen Huang, university spokesman. n