[3][4] Hansen is best known for his work on the generalized method of moments, he is also a distinguished macroeconomist, focusing on the linkages between the financial sector and the macroeconomy.

His father, Roger Gaurth Hansen, served as provost of Utah State University and was a professor of biochemistry.

With several coauthors such as Kenneth J. Singleton, Scott F. Richard, and Robert Hodrick, Hansen applied GMM to study models of asset valuation.

His contributions and current research interests are outlined in a December 2015 interview[10] appearing in The Region, a publication of the Federal Reserve Bank of Minneapolis.

He is one of the founders of The Society for Financial Econometrics (SoFiE)[15] He is the co-winner of the Frisch Medal with Kenneth Singleton in 1984 for his paper, "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models".

[16] For his work in studying the properties of financial markets and macroeconomics, he was the 2006 Erwin Plein Nemmers Prize in Economics recipient.

[17] He was recognized for his use of statistical methods in economics by receiving the CME Group-MSRI Prize In Innovative Quantitative Applications in 2008.

[20] On October 14, 2013, Hansen, with Eugene Fama and Robert Shiller, was awarded the Nobel Memorial Prize in Economic Sciences.