For years, Brad Margus has juggled two goals as chief executive: Make money, and find cures for his children. He just co-founded a startup, Exigence Neurosciences Inc., in part to seek treatments for his two sons who have ataxia-telangiectasia or A-T, a rare progressive and eventually fatal neurological disease... “The amount of money needed to develop a single drug is so much more than what pure altruism can fund,” says Andrew Lo.
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 financial system has gotten much more complex, but many financial regulations are from the 1930's and 40's, notes Andrew Lo, professor at the MIT Sloan School of Management. Lo helped come up with the idea for the U.S. Office of Financial Regulation, which was created by the 2010 Dodd Frank Act. Nonetheless, much of Dodd Frank is way too long and difficult for anyone to understand, Lo contends. 'That wasn't so much an update as it was a piling on of new regulations,' Lo says of Dodd Frank.
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.