WSJ Wealth Expert Andrew W. Lo of MIT says robo advisers are the rotary phones to today’s iPhone--technology that has great potential but it still immature.

Opinion Editorial

"A new class of medications was recently approved that cures more than 95 percent of people with Hepatitis C in only six weeks at a cost of about $84,000 per person, and new therapies with price tags that are likely to exceed $1 million per person are now available or coming soon. How can patients possibly afford them?

"In an article published in the journal Science Translation Medicine, we outline a feasible market-based solution that could immediately expand access to transformative medications, including cures for Hepatitis C and cancer. The basic concept is to convert a large upfront medical expense into a series of more affordable payments, akin to getting a mortgage when buying a house. The challenge of curative medications that only require a short course of therapy is that the whole price is paid upfront — how many homeowners could buy their houses using only cash? Instead, most home buyers get a mortgage and make monthly payments for as long as they benefit from owning the house or until the full amount is paid. We propose the same solution to overcome the liquidity problem that prevents access to curative medications, which we call “health care loans,” or HCLs..."

In this article, we suggest an alternative structure for undertaking the long-term, high-risk, highly capital-intensive R&D programs that typify science-based settings. We refer to this structure as a project-focused organization (PFO). PFOs are entities that are created with the sole purpose of conducting a specific R&D project. When the project is completed, the PFO is disbanded, residual returns (if there are any) are distributed to investors, and intellectual property and other assets are sold off. We think PFOs are an attractive alternative to both the traditional vertical integration model and the traditional venture capital/entrepreneurial startup model. We discuss how such PFOs could work in practice, using the example of biopharmaceutical R&D, although we argue that the structure has much broader applicability.

As price-gouging practices by a handful of drug companies attract headlines, one troubling aspect of the story remains underplayed. Exorbitant increases in the prices of existing drugs, including generics, are motivated not just by crass profiteering but by a deep skepticism about the economic feasibility of developing new drugs. That skepticism is justified.

Traditional models for funding drug development are faltering. In the US and many other developed countries, the average cost of bringing a new drug to market has skyrocketed, even as patents on some of the industry’s most profitable drugs have expired. Venture capital has pulled back from early-stage life-sciences companies, and big pharmaceutical companies have seen fewer drugs reach the market per dollar spent on research and development...

In this opinion piece, MIT Sloan Professor Andrew Lo and Princeton Professor Simon Levin write, "We propose that the financial system has crossed a threshold of complexity where the system is evolving faster than regulators and regulations can keep pace. For example, the system is now truly globally connected, but coordination across sovereign jurisdictions is difficult to achieve. This new situation calls for a new perspective, one based on a different paradigm than the ones on which financial regulation is currently based, such as efficient markets, rational expectations, and models patterned after the physical sciences."

MIT Sloan Professor Andrew Lo authored this blog post about the development of a mega-fund to finance research and drug development for orphan diseases.

The financial system has reached a level of complexity that only “power users” – highly trained experts with domain-specific knowledge – are able to manage. But because technological advances have come so quickly and are often adopted so broadly, there are not enough power users to go around. The interconnectedness of financial markets and institutions has created a new form of financial accident: a systemic event that extends beyond the borders of any single organisation.

In this guest post, MIT Sloan Prof. Andrew Lo provides an insightful look at how "extended periods of prosperity act as an anesthetic in the human brain," lulling everyone involved into "a drug-induced stupor that causes us to take risks that we know we should avoid."

The push for financial regulatory reform has highlighted an important debate surrounding the Efficient Markets Hypothesis, the idea that market prices are rationally determined and fully reflect all available information. If true, the EMH implies that regulation is largely unnecessary because markets allocate resources and risks efficiently via the "invisible hand". However, critics of the EMH argue that human behaviour is hardly rational but is driven by "animal spirits" that generate market bubbles and busts, and regulation is essential for reining in misbehavior.

In this opinion piece, MIT Sloan Prof. Andrew Lo writes, “The world has become more complex over the past 20 years, and we need to update our investment paradigm to incorporate these new complexities... To achieve true diversification, investors must now have a broader set of asset classes and risk exposures, long and short, in their portfolios.”