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Game Changer

This MIT Economist Has a New Theory of Finance

Andrew Lo wants you to realize that traders are animals.
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Illustration: Sam Kerr

Every reigning theory of finance has holes. The efficient-markets hypothesis says markets are rational and self-regulating, but it doesn’t account for crashes and crises; behavioral finance blames market breakdowns on investors’ short-term thinking, but it fails to account for group dynamics or predict future markets. Andrew Lo spent his early career studying these flaws.

Lo, 57, is the Charles E. and Susan T. Harris professor of finance at the MIT Sloan School of Management, but he’s always been a multidisciplinarian. At the Bronx High School of Science, he excelled in biology, physics, chemistry, and mathematics and liked solving broad problems. “I just really enjoyed the dynamics across all these fields,” he says. “I never thought of myself as, I am an economist or I’m a statistician.”