Desai starts with one of the fields of finance often considered to be the driest: insurance. He writes that he’s “delighted and surprised” when his students choose to go into insurance. Why? Because insurance addresses the fundamental uncertainty of our lives – the type personified in the life of Flitcraft, a fictional real estate executive described in “The Maltese Falcon.”
Flitcraft narrowly avoids death when a falling beam crashes into a sidewalk as he walks by. This random scare sends him in search of a random existence; he changes his name to Charles Pierce and lets his life take loops and unexpected turns. By exposing himself to risk, Flitcraft becomes a human embodiment of the need for insurance. (This was intentional. Flitcraft is named after an early actuary; the mathematician and philosopher Charles Peirce was an early champion of insurance.)
Desai also uncovers finance theory in Victorian romances. In Anthony Trollope's “Phineas Finn,” Violet Effingham thinks about option value as she maintains a diversified portfolio of suitors. Lizzy Bennett, Jane Austen's heroine of “Pride and Prejudice,” faces a classic “optimal stopping problem,” in which she risks ending up alone after turning down her first suitor. (Spoiler alert: Bennett’s bet pays off – she ends up with the delightful Mr. Darcy.)
While I’ve focused on literary examples, Desai’s exposition runs the cultural gamut. Jeff Koons manifests leverage in his art by financing and promising to create pieces before he knows how to construct them. Bialystock and Bloom’s antic scam in “The Producers” reminds us how important it is to have investor oversight.
At the end, Desai gives us a finance heroine to admire: Alexandra Bergson of Willa Cather's “O Pioneers!,” who takes calculated risks in land investment for the benefit of her loved ones – and even in success thinks of herself as only a steward of capital.
So where does this journey lead? First, it gives a vibrant rediscovery of finance a human face. That alone is valuable, especially for those disheartened by the financial crisis, rising inequality and finance bros. But Desai’s “Wisdom” does more; it reminds us what’s meaningful in finance, both in terms of theory and in terms of the people that theory supports.
If finance were better attuned to its human impact, we might see fewer Martin Shkrelis and more Alexandra Bergsons. At a more macro scale, we might see more research, business and policy that recognizes the consequences of modern finance’s faults. There’s a lesson for the rest of economics here, too: As we bring economics to bear on human problems like intergenerational mobility, immigration and housing, it might pay to be well-read.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Scott Duke Kominers is a junior fellow in economics at the Harvard University Society of Fellows. Previously, he was the inaugural research scholar at the Becker Friedman Institute at the University of Chicago.
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