Player Piano

by Rick Nason, PhD, CFA
Partner
RSD Solutions Inc.

Just selected the novel Player Piano  http://www.amazon.com/Player-Piano-Kurt-Vonnegut/dp/0385333781/ref=sr_1_1?ie=UTF8&s=books&qid=1266865993&sr=8-1  from my bookshelf to read on a plane trip that I am about to make.  This 1952 novel from Kurt Vonnegut is one of my favorites.  It tells the story of a future in which only those with a PhD have meaningful jobs.  The novel also envisions a world in which the activities of skilled workers are digitized in a Tayloresque fashion so that robots can recreate their actions.  The assumption is that computer controlled machines – with perfect replicability – will perform better and more efficiently than humans with all of their random flaws and emotions.

Re-reading this book brings to mind three questions.  (1) What would the field of finance or risk management look like if everybody had a PhD?, (2) What would the field of finance or risk management look like if no one had a PhD (or no one had a graduate degree of any kind in finance), and (3) If we were going to digitize the actions of the best bankers and risk managers (their decision making processes), what would the algorithms be like?

If you have a graduate degree, the first two questions are likely to be non-sensical.  At a minimum, you are likely to provide a very different answer from those that do not have an advanced degree in finance.  I believe however that some interesting insights might come from some introspection on this question.

The last question is the one that I find to be most interesting.  It is also the most troubling and challenging.  It also raises a host of other questions such as; (a) are we trying to understand the actions of the best managers?, (b) what types of decisions do these managers actually make?, (c) are these decisions consistent enough that they could be modeled?, (d) would this process help further the field of finance and risk management, …   I am sure you can come up with many more. 

Interesting – or at least it is to me.  I think I will actually enjoy this plane flight – once I get through the risk management system known as airport security.