When trying to understand how the market is working, we should think not only of bulls and bears, but also of dodos. Our aversion to risk comes from the deep biological imperatives that have allowed humans to avoid extinction. Any theory of markets must take account of this.
That, at least, is the radical prognosis of Andrew Lo, of the MIT Sloan school of business, who has for years worked on an ambitious project to apply biology to finance. His latest paper, published with several colleagues, provides mathematical equations to show how risk-averse behaviour is necessary for survival. That means that investors in markets will take risk-averse actions rather than the purely rational decisions that economists have classically assumed.
The MIT Sloan School of Management's Institute for Work and Employment Research, The MIT Political Science Department and Boston Review convened a diverse group of faculty and community leaders to discuss the lessons that can be drawn from the astonishing events involving Market Basket. Excerpts Professor Andrew Lo's comments from the panel on Finance, Marketing and Operations are included in this article.
Natixis and MIT team up to build individual benchmarks based on investor behavior. Dr. Andrew Lo, Charles E. and Susan T. Harris Professor at the MIT Sloan School of Management and director of the Laboratory for Financial Engineering (LFE), will lead the project, which will be conducted using Natixis data (the firm has collected several years worth of data that track the behavior of individual investors, financial advisors and institutional investors, and that is based on responses to more than 500 survey questions by more than 30,000 participants). The main goal of the project is to create personal, individual benchmarks that take into account individual behaviors in order to improve investor participation and performance.
The quest for a treatment that can combat Alzheimer’s remains frustrating and expensive, but Andrew Lo believes he may have a path forward. A finance professor who directs the Laboratory for Financial Engineering at the MIT Sloan School of Management, Lo thinks that a public-private partnership could solve some of the funding issues that have plagued drug discovery and development.
More than 5 million Americans suffer from Alzheimer’s disease, the affliction that erodes memory and other mental capacities, but no drugs targeting the disease have been approved by the U.S. Food and Drug Administration since 2003. Now a paper by an MIT professor, Andrew W. Lo, suggests that a revamped way of financing Alzheimer’s research could spur the development of useful new drugs for the illness.
MIT finance professor, Andrew Lo, is working with banking regulators at the Office of the Comptroller of the Currency, an arm of the Treasury Department, to help build quantitative tools to find potential credit risk in the banking industry, starting with the mortgage market. The efforts of Lo, a pioneer in his field, are part of an unprecedented push at the OCC to embrace quantitative analysis. The regulator is building models, hiring financial engineers - known on Wall Street as "quants" or "strats"- and questioning banks to a far greater degree than it ever has before.