Markowitz, Harry Max (1927– )

US economist. He shared the Nobel Prize for Economics in 1990 with US economists Merton Miller and William Sharpe for pioneering the theory of rational behaviour in relation to portfolio selection as distinguished from security selection. He designed and developed several computer programming languages, such as SIMSCRIPT, which simulates alternatives subject to randomness and uncertainty, and EAS–E, which was especially designed for business decision-making.

Markowitz's principal contribution to financial economics is the concept of mean-variance efficiency as a criterion for portfolio selection. Investors naturally want to maximize the expected present value of the stocks they hold, but since stocks fluctuate in price, the problem is to maximize the mean value of a diversified portfolio of stocks and at the same time to minimize the riskiness or variance of their expected return. There is normally a trade-off between the mean and variance of a portfolio, so an optional portfolio is one that achieves a maximum expected return for a given level of risk, or, alternatively expressed, a minimum variance for a required expected return. It is hard to believe that when these ideas were first mooted by Markowitz in the 1950s, many regarded portfolio selection as falling outside the domain of economics.

Born in Chicago, Markowitz received his BA, MA, and PhD from the University of Chicago in 1947, 1950, and 1954. After a decade of research at the Rand Corporation, he worked in the private sector for the General Electric Corporation, the Arbitrage Management Corporation, and TBM in between a year of teaching at the University of California, Los Angeles, and the Wharton School, University of Pennsylvania. In 1980 he became a professor of economics and finance at Rutgers University.

His publications include Portfolio Selection: Efficient Diversification of Investments (1959), Studies in Process Analysis: Economy-wide Production Capabilities (1963; with A S Manne et al), The Simscript H Programming Language (1969; with P Kiviat and R Villaneueva).