This story on a recent paper co-authored by MIT Sloan Prof. Andrew Lo describes his proposal for a five-tiered organization of uncertainty to more effectively understand and calculate risk in economic systems.
"What we thought was diversified became very highly correlated because of the global integration of the financial markets. Assets we thought were uncorrelated have moved together, so we have to be much more thoughtful about asset allocation," says MIT Sloan Prof. Andrew Lo.
"The traditional approach in stocks, bonds, and funds is no longer enough. To get by, you have to invest in currencies, commodities, real estate and private equity as well as in long and short strategies," says MIT Sloan Prof. Andrew Lo in this interview.
"Economics evolve, dictated by the behaviours of individuals, who learn from experience and positive feedback," explains MIT Sloan Prof. Andrew Lo in a story on the use of biological ecology principles in financial models.
MIT economist Andrew Lo, who beyond guest-blogging his favorite recent economics book here on Making Sense this week, appears on Friday’s NewsHour, discussing how human frailty and bad decision-making factored into the financial crisis.
"Maybe we should provide more government support for financial PhDs, as we already do for engineers, so the pay scales would seem less skewed and government service not look such a poor choice," says MIT Sloan Prof. Andrew Lo.
On March 22, 1992, USAir Flight 405 departed from LaGuardia Airport in icy conditions, and a few minutes later, stalled and crash-landed, killing 27 passengers. A year later, the National Transportation Safety Board (NTSB) completed its investigation and published Aircraft Accident Report AAR–93/02 in which it concluded that the crash was caused by a build-up of ice on the plane’s wings just after take-off. Despite the fact that de-icing fluid had been applied at the gate, a departure delay after the plane taxied onto the runway allowed ice to re-form on the wings, leading to the crash. Shortly after that report was published, airports around the world quickly modified their protocols, de-icing planes just prior to take-off rather than at the gate.