Allison Schrager Discusses Monetary Policy

just worked my way through the book. I love the title and economists walks into a brothel, which really has nothing to do with sex and everything to do with finding ways to do risk reward analyzes in really unusual places. So whether it's big wave surfing or horse breeding, or poker playing or paparazzi, there are all these unusual um situations where we don't really think about the risk reward analysis, but really the details of that have a major impact

on how these industries and these individuals progress. And and once you start looking into that, it changes the way you look at everything from insurance to annuities to hedging to market based portfolios. Risk permanent permeates everything we do and most of us just don't give it enough time and thought to recognize the dangers and advantages it potentially

can afford us. So, if you're at all interested in filling the blank investing, insurance, understanding risk, understanding what happens in a brothel from an economic perspective, I think you're gonna find this to be an absolutely fascinating conversation. So, with no further ado, my interview with Alison Traeger. This is Masters in Business with Barry Ridholts on Bloomberg Radio.

My special guest this week is Alison Schreeger. She is an economist and adjunct professor at n y U, a journalist at Courts, co founder of life Cycle Finance Partners, which is a risk advisory firm. She is also the author of An Economist Walks Into a Brothel and Other Unexpected Places to Understand Risk. Alison Schreeger, Welcome to Bloomberg. Thank you for having me. My pleasure. So, so let's

talk a little bit about your um backgrounds. You describe in the book making a series of what you later called risky career decisions, not exactly sure what you wanted to do. Your assumption was, hey, PhD program and economics. Obviously you're gonna become a professor. How did that work out? Um? Well, in the end, I think it worked out well for me, but the path was a lot rocky year than I

would have expected. I think, like a lot of people, especially in this day and age, I fell into this idea that more education was just better and it would open up all these doors. And most of the time it does. I think that is normally a good bet, and certainly an economics PhD is is a good thing

to have in life. But I had kind of a rocky transition when I finished grad school because I had invested essentially my whole twenties into learning all these skills and really being cut off from the rest of the world, and then realized what I was investing in was this idea of becoming a professor, and had this realization as I graduated, this was not what I wanted to do at all. So undergrad it and Edinburgh PhD at Columbia University.

What sort of thesis were you working on that? Um? Weirdly, even when I was like eighteen, I was always really fascinated by retirement. Uh So my PhD thesis was on risk in retirement, so it was I started around two thousand and so this is as DC Plans had really taken a foothold in the market and I was doing some work in the UK where they were taking over, so really understanding more deeply the risks and define contribution

versus define benefit pensions. So eventually you come to the realization, hey, I'm not going to be any sort of professor. And then you happened to have a job interview with a world famous Noble Prize winning economist, Robert Martin. What happened with that? Well, I uh, as I said, I had this hard realization when I was finishing grad school. I

didn't want to be professor. I didn't want to be a government bureaucrat all the things you're supposed to do with an economics PhD. So I kind of had this burn it all down, do something new attitude, which also turned out to be helpful for the book. So I was like, I'm gonna do something fun. I've just spent my whole twenties while everyone else was partying solving a

math problem. So I went to the economist unpaid, because this is early days with web journalism, and they would take people who had never written before to write for the web back then and what you pay for right, So I was just writing web web stuff for the economists for free with any com PhD. And then someone passed my dissertation along to Bob Merton and turned out retirement was also his main interest. He was working on

market solutions to the retirement problem. So so let me interrupt you there and ask some questions here, because this is really kind of fascinating. You're wildly overqualified to turn out web based nonsense where you're not being paid for a website, and you know they treat unpaid volunteers not especially well, and they have the same respect for their content. Who said, oh, I know Allison's pH d thesis. Let me give this to Bob. He's busy, he want a

Nobel prize, but he'll like this. How on earth did that come about? Um a friend of mine who I think had him when he was doing his NBA at Harvard. And because my dissertation, that is exactly what Bob was doing. Bob was trying to come up with financial models that took the best to define benefit plans and put them in a defined contribution structure, and that turns out, you know, as I said, as much as I said burn it all down, I always had a good dissertation which I

thought about risk in a clever way. So once Bob didn't know, i'd sort of hit bottom career wise. You know, it just goes to show where something you feel like something can feel like it totally blew up. I was thinking, I just really messed up here, you know, I just wasted all this time. And then my paper ended up in front of him and he was like, I really want to do this. He called me in. He's like, if you come work with me, I will teach you finance.

Let me tell you when I first was handed a book whose title was an economist walks into a brothel. I'm intrigued. Okay, now, your your thought is they're not going in there as a customer or anything like that. You thought is what sort of wacky economic data are they going to be analyzing? As an economist looking at the sex trade, it's pretty fast spending subject. How did you find your way to Nevada and going to the bunny ranch? So I wrote a story for courts because

I'm it's interesting. I've always been in shouting risk even as a journalist. You know, after I started working with Bob, before I was a macro economist, I became I learned finance. I'm like, everything I know about the economy, I was wrong. Risk is a much more rigorous and interesting way to

understand the macro economy and every economic problem. So I was applying that in sort of this freakonomics see way as a journalist, and I wrote a story about uh, a friend of a friend who was running an online brothel where her value add was screening clients. This is an illegal operation, so when you work illegally, you have to screen your clients otherwise, especially these were first submissives specifically, so they get they get tied up, so they're particularly vulnerable.

So screening has especially important premium. So she was being paid this memium to screen them, and I was like, well, this is pretty cool. Uh. So I wrote the story about it did super well, as you can imagine, And so I got a call from the Bunny ranch saying, if you're gonna be writing about brothels, you should be writing about us, and all, well, I don't write about brothels, but this is an interesting call, So I'm gonna continue this um and so I was talking to them and

they were I'm like, how does this all work? They're like, well, the women come in and every we don't upset prices. They negotiate every transaction and they kind of another throwaway thing he said. And I was like, well, that's actually very interesting. So you're telling me you have women who are about twenty years old negotiating with men in their sixties over tens of thousands of dollars. He's like yeah, and it's interesting you say that because most of them

come here not knowing how to negotiate. So have a negotiation training program. So the Bunny Ranch in Nevada reaches out to you and says, hey, if you want to have a conversation about a brothel and about risk and analyzing numbers, come to to us. What was your thought process when you got this phone call? Well, at first I was like, this isn't my thing, this isn't what I'm like known for. I'm a retirement economist. But when they said the thing about we have a negotiation training program,

which is something I struggle with. Two, Like, you would think a car dealership has a negotiating training program, not a brothel or sales job on Wall Street, you know they and they're like well, and then he even said the headline, the women here don't know their value, so we teach them to know their value and to ask for enough. And I was like, well, I could use that. So I talked to my editor at Courts to sending me there to go through their negotiation training program. It

was the immediate reaction, this is a great story. Oh yeah, they send a video crew, all right, so they were they were pretty hip that, hey, this is funky and on you. This was freaky before fre economics, wasn't this freakonomics is already out, but okay, it took it to another level because I don't think Steve Levitt's spent a lot of time in brothels. Now he focused on young drug dealers in the inner city and other similarly freaky stuff. But this is like right up his alley for sure.

So you get to the Bunny ranch. How receptive were the women to speaking to you about all these sorts of economic related um issues of of salary and compensation and negotiation and the beginning Some some are very very wary, some are very open, but once you get talking to them, they open up because I think a lot of people go there and they don't really take them seriously as business women. And okay, uh, Dennis when he was alive,

this is the guy who was running the bunny ranch. Yes, uh really had a lot of good business training going on. And the women they're are great business women and they're proud of what they know. So once you get them talking about that, they do open up. Because this is a special skill a lot of them have learned, and a skill honestly, I think most people could learn on

their jobs and they don't. So how to value the worth of your own work products relative to the mare could place and relative to customer on the other side of the desk from you, and how to ask for it, how to feel comfortable. Especially it's an interesting negotiation because you have to negotiation can be very fraught and afterward you're gonna have this very intimate encounter with this person.

So making that transition, which is I mean a more exaggerated version how Valley calls that the pivot, it's a more exactitary vision of what we all do, right, Like, we have to negotiate with someone and we have to work with them. So this is just that on steroids? Huh? And and so what is the secret? What did they do that's somewhat different than what or what did they

teach you that you didn't know going into this? I think I always saw negotiation is very adversarial, and what I learned is how to make it not so, how to just put a bunch of things out there, which apparently is a negotiation technique. Here's a here's a men, you choose a be your sake. That's really interesting, and therefore then it's not adversarial. It's just, hey, you know, everyone feels like they're getting what they want. I'm customizing

this experience for you. So when I was there, I learned a lot about pricing, sex pricing, and something that fascinated me was how much more they could charge than the illegal market. And now the assumption is, from the John's point of view, they're going into a place where they know the workers have been tested for STDs, they know they're not going to get mummeda, ripped off, they know they're not going to get arrested. That should be

worth some sort of premium, shouldn't it. I never thought of it that way before, but that was what always on the lookout for risk fascinated me because I mean, the premium is large. When I went, I went back to the brothel for bookwork and surveyed a lot of the women on their transactions. And then it just turned out that this economist I knew, scraped all the data from the Erotic Review, which is yelped for a legal sex work. So I had one point two million legal

sex transactions. So i'd really good robust data set. So I was kind of surprised in reading that chapter, that section of the book the Bunny Ranch. To go to the Bunny Ranch, it's a couple of thousand dollars per um experience. I don't know what's called. The median price I found was four hundred dollars an hour. That's a lot of money. Yeah, uh, you know, especially if you just hire a woman online, even for escorting, which is

more high end. I think equivalent to what you get at the Bunny Ranch is three or four hundred dollar an that's all. Yeah, and you don't have to go to Nevada. Yeah, but then the risk is four dollars. But you might get arrested, you might get robbed, you might who knows. You might get killed, so it's worth a premium, one would argue, And you effectively do that

in an economist walks into a brothel. Uh that what you're paying is you're paying an insurance premium to eliminate all of the risk associated with legal sex for higher transactions. And on the other side too, because you think these women they're getting so much money, but they're really not. Now, what's the payout to the woman relative to at Ridge. Let's call it fifteen hundred dollar average. They're getting what you wrote about half goes to them, Well, not even

half goes to the brothel. So they have to give fifty of their cut to the brothel. And then, uh, they're legal sex workers, right, so they ten ninety nine employees, so the self employment tax together cover that. And I mean these are high earners. They're making, you know, probably at least a hundred grand a year, so I mean a lot of them don't live in Nevadas. They might have stayed income taxes on top of it all. So we're talking. So do they do an I RA A or a KYO. They have to have some sort of

retirement friends. So Dennis had really had really good financial planners coming in and give them very good financial literacy. I was talking to these women who came from households where no one had a bank account. They're like, I didn't even know the credit score was. And then they're telling me, oh, yeah, my ra is on index funds. You know, why pay the fees for active That's just that's just hilarious. I have a I have a million, a million horrific puns, and I'm not going to touch

a single one of them. Wait, so are you saying they were passive investors not active? Is that? Is that what you're saying? They were indexers? Right, They're they're all indexers. That's hilarious. That's that's really hilarious. So what was the single most surprising thing that you came away from the Bunny Ranch with having interviewed all these professional legal sex workers.

The most surprising thing? I mean, I know it's sounds almost patronizing, and I knew they'd be smart, but I was shocked at how much I learned from them about business, about negotiation, and about risk. So more than just smart savvy, very savvy. Let's talk a little bit about risk, because I think different people think of risk differently, How can you define what risk is for the average person. Well, I think of risk. I think of it as an estimate of all the different things that could happen and

how probable they are. As I say, it's a very technical definition. Let me ask you the same question a little bit differently, then, Since you run a firm who's got the words life cycle in its name, how does risk change over the course of a person's lifetime. Well, um, you have career risk, you have academic risk, you have retirement risk. I mean there has to be a million different points in one's life where the risks that are

presented to you are very different with different ramifications. Totally, and how we are able to deal with risk and understand risk and how risk averse we are can also change over a life cycle, which makes it even more complicated. You know, there's all this evidence about behavioral biases, but there's also evidence as people get older those biases tend to be less prevalent. Really, so, is it that we get a little wiser with age or it just matters less?

Have we get a little wiser with age? There's experience that just as well. Experience really changes how you perceive risk. Like, once you've seen things blow up for you a couple of times, suddenly you become a little more risk averse or a little more aware of the probabilities you face, or take time to hedge or ensure when you take risks. Let's talk about that, because you have a few chapters in the book on the differences between insurance and hedging.

So let's talk a little about hedging, whether we're referring to a market perspective or any other perspective. What is hedging and what should the average person use it for? I think of hedging and is it This is a distinction that a lot of people don't. I think asn't often made very clearly. In fact, I had lunch with the CEO of an insurance firm who even he kept we kept messing up insurance and hedging. So it's it's a very subtle but important difference, and you make it clear.

They're two very distinct things. They are, and if you draw a picture of what they mean in on a graph, it's very clear. But intuitively it's a very hard difference. So I think of hedging as you just take less risk. So in basic finance world, that would be of a risky asset and you have a risk free asset. So hedging is just putting more of your portfolio and the risk free asset, the typical sixty stock and bond portfolio.

You're not so much hedging your stocks as you're removing some risk and putting it into much lower risk fixed income exactly, So you're you're hedging your portfolio balance. So I've always thought of hedging as I'm willing to give up some upside and an exchange reduce my downside. That's exactly it. Okay, So if you is it, If you in some sixty you do fifty fifty, that's a less upside of stocks do well, but also less downside risk

of stocks crash. Or conversely, I'll own X y Z stock and I'll marry a put to it, and that protects it. It costs me something, cost me a couple of percent, but hey, if the stock falls out of bed, the put should cover some percentage of most of that downside. Yeah, they usually think of puts assure a little bit more insurance, as I was saying it. So, so now let's talk about insurance. How do you think of insurance? What? What does purpose does insurance serve. So insurance is a little different.

So rather than giving up you know, upside, what you're doing is you're paying someone a fee, So you give up that amount of upsite, but it's a set amount and you eliminate downside risk, So a predetermined costs, and what you're purchasing is putting that risk or eliminating that risk from yourself, putting it onto someone else in a specific state of the world. Yeah, so it's insurance, which is if if X happens, if this, if this stock

goes above the strike price, then I get something. So I've never owned a car where I did not have at one point in the ownership of that car, uh, some piece of gravel of rock mo up on our local crappy highways here in New York and either ding or crack the windshield. So once I could start affording it, I always get glass insurance on the car, and I have replaced literally every single windshield I've ever owned. Um is that a good use of of insurance or am

I just padding their profits and wasting money? It sounds like it. I mean, if you're if you're if you're claiming it. Well, but you know, a car you have three, four or five years at least UM, and you're paying whatever it is, a hundred bucks that I guess what I'm really paying for is, Hey, I don't have to worry about whether or not I break a window of somebody else. Somebody else is responsible for that. Is that

a fair definition of insurance? Even though you're paying a fixed amount, that stress and worry goes away exactly because now the stress of breaking the window is on the insurance company. I mean, you have to still go through the rigamarole replacing it, but the financial risk is borne by someone else. So let's talk a little bit about the book and some of the other things, um you describe.

Outside of the Bunny Ranch, you spoke to a number of poker players who had some kind of surprising statistic. The one player whose name escapes me, but was notorious for having yes for having these sort of hissy fits when he either wasn't happy with his own play or what have you. He said, he should really only be playing a very small percentage of hands. And I would have guessed what percentage does he play? It's twelve percent, twelve percent. That's in a one out of eight hands,

so seven out of eight hands he's not participating in. Yeah, and there's a lot of poker terminology, which is new for me because I'm not a player, and they call that patient. I don't know if that's specific to poker, but you would think if you're passing on seven out of eight hands, there's a lot of patients with that, especially for someone who struck me as so volatile and out of control. Now is how much of that is real and how much of that is just to get

into the heads of the other players. I think it's a combination of both. I think that's his natural temperament and he's noticed it's also an asset. So in the beginning it wasn't an asset. It was a bit of a problem for him. How did he manage to deal with that risk and turn it into a positive Well, he tells stories of just being so emotionally overwhelmed by

trying to keep him in check your pass out. But when you really delve into it, you realize, you know, this is the classic behavioral bias we called loss a version, which is when you're losing, you know you hate you hate losses so much more than you value gains that you'll take double down and take extra risk to avoid a loss. And so this is often shows up a lot in poker and why people play too many hands. So he has to do is anyway, even though he's down, is still not play the hands. So he has to

stay rational and like overcome this bias. And my found is behind the scenes he's doing all these things so he feels like there's less set steak so he can stay more rational. He does things like he gets he called steaked, which is someone else is an investor in him and takes a percentage of the winnings exactly. So anyway, he claims to be incredibly wealthy, um, he only puts in ten tho dollars of his own money in any poker tournament. The other thing he does so it's effectively hedging.

And the other thing he does is he sort of gets this weird insurance, which is where he's in the in a major game and he takes the other player aside and they cut these little back deals, which is apparently allowed. And so in other words, some of these tournaments are winner takes all and if you come in second you get nothing. So in one one of these tournaments he pulled someone aside and said, here's the deal. Let's agree to split um a million dollars each of

the purse, and whoever wins gets the balance. So so if you lose, you take half a million, and I think it was like two point two millions something like that for the winner. So there's a little bit of a hedge there as well. Yeah, so he does all these things to take a little risk off the table and that keeps him rational. What about the concept of a player who, after they lose a few hands, instead of being patient, has a tendency to try and get

back to break even. There's something about that concept of I gotta get back to break break even. Stock traders do the same thing. Hey, I know this stock is a piece of junk, but dear Lord, if I get back to break even, I swear I'll sell that sort of attitude. Poker players do the same thing. They do um, but the successful ones are the ones. This is what I was saying about. There's evidence as you get older and wiser, you are less prey to these behavioral issues.

And I think it's John List is this economist who studies loss of version how impacts behavior? Uh, because the break even effect is just sort of a corollary of loss a version, which is, when you're down, you're so determined to win back, so you didn't experience a loss, you double down and take extra risk risky would have never taken if you were up. It seems almost opposite of risk aversion. You're embracing so much risk I guess to try and recover from that loss only when you're down.

And this is the interesting, you know, sort of um deviation from what economists normally think is when you're down, you'll take that extra risk to get back. So tell us a little bit about how we should be thinking about risk in the stock market. Well, actually, I mean my background to approach risk is from financial economics, which

is the study of the stock market. I think in a lot of ways, the stock markets the perfect place to think about risk because you just have so much data, and what financial markets are doing is just finding ways to price and move risk around. So I think anyone who is in the stock market is someone who's naturally thinking about risk all the time. Huh. And and we're

making more data every day, don't we. Yeah, I think again, you you do get people who get away from you know, as I said, if they're down there, like, there's all this evidence that people won't sell losers, but they'll sell winners. And you know how, you know that usually not a good idea. The stocks going down, it might probably keep going down, is supposed to you know, why would you sell your winners and keep a loser. But that's supposed to be some version of loss of version people think.

So there was a study that had come out towards the end of eighteen that had looked at portfolio managers and rather than compare them to a benchmark, what they did instead was, let's instead of selling what the portfolio manager sold, we're gonna randomly sell anything else from their portfolio and then compare and see how they did. And it turned out that random sales outperformed manager sales by

a hundred basis points over the next year. And when they looked at what was being sold, they found two broad categories that accounted for most of the underperformance. One is stocks that had gone up a lot and therefore we're benefiting from momentum. Managers had a tendency to sell those, but also stocks that had collapsed a lot, rather than selling them when they were small losers. They waited till they were giant losers and effectively had become deep value

plays and they were selling them. And those two categories were Um, we're determined to be the behavioral errors that we're we're driving portfolio losses. So hold that aside. Let's let's think of of the stock market in terms of individual investors embracing of risk. Are most people overly invested in the stock market and the embracing too much risk?

Or do you perceive the actual Do you perceive risk amongst individual investors as just not taking enough of it, especially in the early stages of a market, and not embracing it until the very latter stages in the market. I think it's hard to say. I mean, the rate stock allocation really depends on an individual and where they are in their life cycle. Um, I think people don't appreciate a lot of people don't appreciate how risky the

stock market is. Like my mother is nearing retirement and she expects her portfolio to like double every year, and I'm like, sure, but you're gonna have to take on a lot of risk for that to happen. And she doesn't seem to internalize that. If you want more return that comes with something, and you know, in stocks are a great investment. They're a great way, especially an index fund, to get UH risk exclosure cheaply and efficiently. But you

know there's you know, there's no guarantees. So we noticed that when housing markets are booming, people have the same overly optimistic expectations about how fast they are home prices are appreciating. I'm assuming your mom is not a big big bit clemon investor. Um, why does she think her stock her portfolio should double every year given long term returns between eight and well disundegrade. It's also you know,

errors and how we perceive risk. I mean, I think people often in assume there's serial correlation where there is none. So you know, if if housing prices have gone up the last twenty years, people assume they'll stay doing that. I think people also make that assumption around interest rates that you know, they've been nothing but go down for the last thirty years. So I though, it's questionable if they can keep doing that, because how negative canields get.

So this was kind of an interesting um aspect of the book that resonated with me personally because we're always trying to teach clients to think about portfolios in terms of a way that's easily understandable. And if you say to somebody, hey, there's the seventy or here here, there's a lot of software that can project you out to retirement. There's a probability that you'll hit your retirement goals, assuming inflation stays under four percent and you continue making your

regular contributions. I don't know what a confidence interval does for most people, but if if you were to say to them, hey, in nineteen out of twenty situations, we can show you you'll hit your target goals. It's only one out of twenty that you don't make it. Why is that so much easier? Don't understand than percentile? Yeah. I'm not a psychologist, but the research psychologist I talked to and said just something about the way our brains

are programmed. His frequencies just resonate with us more. We are so twenty is a better phrase, Yeah, and it makes a big difference because we are programmed as humans were, not complete like it's supposed to be. Disasters with risk. Risk is something that's humans have been facing, you know, as long as we've been on the earth. But you know,

probabilities are a fairly modern invention. They only really came along on the Renaissance with a lot of sort of brainy people Bernoulli and a whole run of difference calling all these people. So, I mean, it's not surprising that we aren't just born having this natural intuitive sense of probabilities. I mean, we both work in this area all the time, and they often don't mean that much to me either. So so for the average person, how best should we

quantify risk? Well, you want to, um, I say converted if you're thinking, except when I defined risk to you and I was like, it's all the things that you can measure happening and now probable they are. That is a probability distributions the whole distribution of things that aren't intuitive to us. Um So, I mean, part of it really is sort of getting more comfortable with those concepts, but it's also when you think of probabilities converting them

to frequencies. The book was really interesting. It reads really well. It's sort of like like as I started reading it, I immediately um thought of against the Gods because it's also so risk focused, but from a historical perspective. This is really a twenty one century perspective on risk. I love Against the Gods. It was my favorite book, and I was actually partially inspired by that because as much as I love it, I wouldn't say everyone wants to read it. I mean it's oh no, everybody should read

that book. It's amazing. Everyone should, but not a lot of people will. I mean it is dense, um. He is a very detailed or in. Every page is filled with lots and lots of stuff, which is why ps if you go back and reread it twenty years later, it's still fresh, and I mean, that is a master work. It's beautiful. I mean, I love everything about that book, and I also love capital ideas. I like his everything

he's done. But you know your mom's probably talk about you know, your mom is probably not going to read it. And I felt like everyone needs to know what's in Against the Gods. And that's partially what inspired this book is I wanted to take those ideas that we're so resonant, and I felt everyone needed to understand and make them accessible to even broader audience. So obviously the whole Bunny Ranch brothel section is hilarious. And must have been a

ton of fun to do. Um, what else did you do in your research that was kind of fun and surprising? It was all fun and surprised I had. I had a I mean I was afraid to write a book for a long time because my dissertation was such a horrible slog. See. I think of my book as as my PhD dissertation, and it was a horrible slob. I think maybe you have to do that first big research

project just has to be horrible. Uh So I was like, if I'm gonna do this, I'm gonna have a lot of fun, which was the other way I wanted to approach the book. So I just was like, I'm gonna have all these adventures. It seems ceased to go places. I went to a risk conference for big wave surfers in a y right. That was the whole fascinating segment. The guys who invented jet skiing their way onto eighty foot waves that before you couldn't even get onto a

fifty footwave. You just weren't able to get out there fast enough. Um, what was that like? You spoke to some really interesting big surf names. Yeah, and you know they have these this regular conference where they talk about risk, and it's like going to a pension risk conference, although everyone's better looking everyone Yeah, like I was in the

worst shape in the room. Um, but but you know it is a it is a conference where they're very thoughtful about risk in debating uh, you know, regulatory function and who bears the responsibility of risk when your behavior impacts other people? And you know, it was as intellectual discussion as I've seen anywhere. And the guy who I profile, Brian cu Lana, is the one who brought jet skis

to big wave surfing. And much like a lot of financial jurve that is initially supposed to be insurance, but as you mentioned, you can also use them to lever up and take on more risk and take even bigger waves. Because anything that can reduce risk can also be flipped

around to exacerbate risks. We see a plateau ng and even an increase in the annual automobile fatality rates, and the discussion in your book and and elsewhere has been, well, how much of the confidence that people feel about air bags and crumple zones and and anti lick breaks is leaving them to drive faster and engage in more dangerous behavior without these safety provisions. What what are your thoughts

on that? Yeah, I mean that is I felt like an important thing to include an any book on risk telling you how to how there's all these tools that can reduce your risk, because then you have to be mindful of not feeling so safe that you can then go and take whatever risks you want, because nothing makes the world truly risk free. You know, we're all risk is all still an estimate of something that's immeasurable. So you know, and you're you're basing your risk strategy on

something you know it's better than doing nothing. Just because it's not perfect doesn't mean you shouldn't do it. But you also have to be aware of the limitations. So even if you have every safety device in the world and you're going to surf an eighty foot wave, it's still not going to be safe. There's nothing to make that risk free. And you specifically refer to a number of big name surface who died even after or perhaps

because of some of these safety innovations being brought in. Yeah, and when I went to the Big Wave Surf Risk Conference, you know, they every innovation resurfaces this issue Initially it was leashes because you're already hated when they first came out totally because I don't know anything about surfing and I've never done it. But apparently before there were leashes, if you wiped out, you lost your board and you had to swim to shore, and that could be maybe

twenty miles. So you think they were like amazing swimmers. Now you can be a pretty mediocre swimmer and still surf. Right, we're sending people out who really, if they get into trouble,

can't swim a half mile back to shore. Yeah. And then it was worse with jet skis because now you can have a jet ski, you know, push you not only an eighty foot wave, but if you only need to belong on a five foot wave, Now you can go on a twenty foot wave, and you pose risk to other people when that happens, if you need to be rescued. And now the big debate is on something called these inflatable vests right when you go under, and they don't always inflate, but it gives people a sense

that all right, I'm okay, I could do anything now. Yeah, And so this because they're new and just starting to be sold. I think I mentioned Greg Long this dame a surfer who's inflatable fest and open that was I think he had a sort of an early version. But now they're being widely sold and this is really tearing up the surf community of who should be allowed to buy these? Is it irresponsible to allow anyone to have these vests? So, in other words, we don't want to

give people a full sense of confidence. Send down an amateur with no skills and no minimal swimming ability out into a dangerous area, and they feel because they have this inflatable vest that they can serve with the big boys, so to speak. But then the flip side of that is what this is a potentially life saving piece of technology. Are you going to deny people buying it? I mean it's there aren't easy answers to this, which is why

they think it's just such debate. But you know, if you go to a finance conference and you debate systemic risk, there s the answers there. Either what what else do you recall from your research that was um, if not quite as buff um, really interesting and surprising because you cover a lot of ground in the book. I've got horse breeding, um that was kind of fascinating. Also, yeah, I didn't. Again, I kind of went after things I didn't really have much knowledge of before. Um and I

never been like a horsey person. I wasn't like when these little girls who rode horses. Uh, I was so I didn't realize that after the tax reform changed the whole dynamics of horse breeding and the economics of horse breeding, and and all sorts of other tax shelters. These things had been devised as a way to hide money from Uncle Sam, and suddenly now they have to stand on their own feet. They can't just be a foe investment exactly.

So the fact that there's less return to long term capital gains and they want to realize the returns from their risk earlier means now that everyone solds a horse after when it's one year old, when they don't have complete information about how good a racer it's going to be. The only information you have is who its parents are.

So this has led to this increase in inbreeding. So we have all these horses that are sprinters, not long distance runners, because that's the first thing that will show and that will help sell a one year old horse. It seems like the incentives are kind of weird and not properly aligned. No, because what you really want is you want a horse. Well, actually the real money and horses is not winning races. It's from the breeding, the stud fees. But you know a good race career is

necessary for that. But none of those things are necessarily correlated with There's been studies on this, on the prices that you sell for as a year old yearling. So as I was reading through the whole horse section, and I rode in college, so I was kind of fascinated by that. And I'm not a big fan of horse racing and betting, but but I enjoy riding. Um, I was reminded of a book I read a hundred years ago by William Goldman, who was the screenwriter for Butchcasting

and Sundance Kid, Princess Bride, and Marathon Man Hit. His Screenless are Insane and his book was called Adventures in the Screen Trade. But a quote of his that I've used repeatedly when writing about markets is nobody knows anything.

And he refers to all the studios that passed on Star Wars, all the studios that wanted nothing to do with raiders, of the lost art, and he uses example after example after example of these people who are supposed to be in the film industry and they're throwing darts. And I'm reading your right up about the various horses that later go on to storied career that were picked

up for pennies because nobody recognized their value. And all of these very storied stud married to uh, these mayors who were great runners, and the horses nobody they don't win anything, they don't. So is it the same sort of situation when it comes to horse breeding nobody knows anything? Well, I think it's that the incentives are kind of are off.

So you know what, people when they breed a horse, they're looking for something that's gonna sell after one year, which is very different from a horse that's going to win a Kentucky Derby. You would think that there's so much money in winning these big races that at least some subsection of the breeding community would say, hey, if you want to buy a horse to sell in a year, don't come to us. We're trying to bread triple crown

competitive racers. How come that hasn't happened? Well, does some degree? You're right that it is just impossible to know. I mean, you're getting more information now with technology because you're able to do the genetic profiling of the horses, which gives you some information, like you can tell, you know, I guess the horses that are best suited for like the Kentucky Derby or so of these hybrid half sprinter half

distance runners, and you can test for that also reference. Um. And there's a really fascinating story I'm trying to remember where I saw it about the size of one of the ventricles and the horses hard you reference. You're they're looking for horses with not metaphysical of that horse as hard, but genuine larger cardiac pumps. Yeah, although you have to be careful because everything you know, horse like everything to be like a racer, so of this freakish combination of

factors have to come together. It's like being a Nobel Prize winning supermodel. It's like you just need all these genetic components in perfect alignment. Um. That that's the I'm sure it's an urban myth, but the Einstein Marilyn Monroe, back and forth. You may not get the qualities you want from each of the sires of the of the horse. Yeah,

you may get the worst qualities of both. So you know, if you uh, if it was one guy explained to me, it's like getting like that perfect heart in the wrong um horse could be like having of them mentioned Ferrari and a super U. So it's it's really hard to predict. So this is why that chapter is about about modern portfolio theory. By the way, that that is the super super U w r X. They've done that and it's

been a very successful car. I don't know anything about cars, so but that was really that was really a fascinating discussion, and I I really enjoyed that last question about the book. Anything else sort of stood out it is Wow, that was really weird and unusual that I was not expected. You know, there was every chapter sort of I guess had those moments. I mean there were certainly when the time I spent following around the paparazzi, I'm like, also

a fascinating story. This is weird. You know, I was telling someone would say, you know, as I'm like crouching behind a garbage can waiting for Alec Baldwin, I'm like, this is just not what I expected when I went to go out school, you know, to end up here of all places. But you know again, they also have a fascinating risk story that's going on behind the scenes. You would never know because, as you can imagine, they

faced just crazy amounts of idiosyncratic risk. At the risk that you're going to get that one money shot in any one day is so large. They have to form these complex alliances to share tips and sometimes royalties. It's especially its pooling, so you're getting rid of your idiosyncratic risk.

But because all the money in celebrity photography is from getting an exclusive, they also have this incentive to always cheat to These alliances are inherently very unstable, so they're always reef warming and breaking up these alliances, so they all hate each other. So this is something you see the paparazzi on the street and you're like, this is a much more interesting story that's going on with this

this lineup of paparazzi than you would ever know. Then the paparazzi a more interesting than catching a celebrity takes their kid out for ice cream. Yeah, they'd always be surprised. Can you me wait for these celebrities for like six or eight hours and after maybe an hour or two. I'll just get bored and I'm like, I've had a good story here. I'm gonna go home. And they'd be shocked.

They're like, but she has an ampauty. I'm like, well, I'm here for supermodel g who was friends with somebody else? Want that? That's how suddenly she blew up on on Instagram. Yeah. Well, the celebrities who do well with the paparazzi also play the game with them. Huh. Quite interesting. You You also have been writing regularly on Vox for some time, and and some of the columns you've done sort of tangentially

involved risk in surprising ways. So everybody today is focused on the Amazon HQ two disaster that blew up earlier this year. Um, but but you looked at it from the context of the US has a talent problem and that presents a risk. Two corporations explain that. Well, so this is as the Richard Florida argument that you need, you know, anyway you think anyone would want to work for Amazon. They still it's the the competition for sort of really good talent is still very stiff, and it

is does occur globally. And we're talking about engineers and programmers, not necessarily the surfs that they have enslaved in their in their warehouse. Yeah, on the high skill tech workers. I mean, they're kings of the labor market and they compete a lot for it, which is one of the reasons why Amazon probably wanted to come to New York. It wasn't just the tax incentives. It was that you

could get talent who wanted to move here. It's really hard to get a cluster of talented young people to want to move to, uh, the middle of the country, and that's why Brooklyn is so hot these days. Yeah. Well, and you can see why because if you are talented, I mean human capital, you know, is something you have to work towards your whole career. You don't just go to Harvard and then you're just set for life. You

have to manage a network. You have to keep your skills sharp, and that's why you want to be around and not just be limited to your own company, be around other people, intelligent companies. That way, you keep your skills fresh. You have the option of changing jobs. That's always a very valuable option. I mean, if if Amazon moved to a place where there were no other good jobs. You're kind of stuck at Amazon and you give up the option of job switching, that's you have to compensate

people for that. Towns are problematic for that reason. Yeah, I mean it worked before when you have people who are more middle skill. And also back before when you had technology was such before where the skills you would learn would be very idustocratic to the company you worked for, and now they're very transferable exactly. So if you want to maintain competitive competitive really in the labor market, you have to be part of sort of these clusters of

people that allow you to move around. And and Google announced they're doubling their New York workforce from seven thousand and fourteen thousand. Apple has dramatically expanded its presence. So if you're an Amazon work or theoretically in New York, they're competing for your skills with some of the biggest

companies in the world. Yeah, but and you know, they don't like the ice work for a company that was far outside my cluster, and they kept trying to get me to move there, And I'm like, but you're asking me to give up a very valuable option. You're gonna have to compensate me for it. That never really resonated with them. But um, it seems counterintuitive that Amazon would want to be close to their job competition, but it's

also what they need to do to attract talent. It's why cities haven't disappeared despite the best predictions of people half a century ago. What about I thought this was an interesting headline. What is the real reason people regret not saving more risk? So, you know, people think about saving as something that they're gonna, you know, often for something that's gonna happen in the future that they want

to do. But when they looked at people at the end of their life or in retirement, the reason why they think they wish had more money. They don't wish they could have gone on better vacations when they retired. They wish they could have a better lifestyle. It was I didn't realize that divorce would blow all my savings. It's not a luxury goal. It's a Hey, things happen

that are just unexpected and I failed to plan for that. Yeah, and people, I mean the the like FOURG dollar for emergency saving figure is a little controversial, but I don't think it is a stretch to say people really don't make emergency savings enough of a priority. Right, that's pretty fair. Um, let's talk about charities. What's the best way to get people to donate to charity? So I think it was John List, who I mentioned earlier, did a study of

the of Alaska. You know, Alaska is just right for a lot of economic studies because they get the dividend payment from the from all the oil reserves that they're selling to or licensing and leasing out to the big public oil companies. Yeah, so they have a program where you can give some of that money to charity. And they had they did a study where you they they came with a card and one said, you know, warm your heart. The other is like improve Alaska. On the

other just was nothing. And they found the warm the heart group donated the most and we're most likely to donate. So, in other words, they made the charitable donation about the person as opposed to the recipient exactly. So appeal appeal to ego. So over the past year or two, we've gone through this giant me too movement. Um, and I know that amongst my colleagues we've had debates about what do you do with an artist who turns out to be a less than um nice guy. Uh. And the

Michael Jackson HBO documentary just came out. I have yet to see it, but I know Michael Jackson fans are kind of split. Some are defending him and others are a little bereft. I was always a big fan of Louis c K. I'm not happy with with what he did. Go down the list, you know, it ranges from offensive to criminal and everything in between. You raised the question, what do you do when a brilliant economist is accused

of sexually harassing his research assistance? So what's the solution? Well, I don't know because the thing about I was writing about Rolling Fire, who has been accused but not found guilty. Um. But there He's been accused by a number of research assistants, some of whom have incredibly claimed that he awarded their careers for They're refusing to succumb to his charms. So which is hard. It's a terrible way to say. Is

this is terrible? But and in his what he always defended himself with and this is a valid point, although doesn't excuse his behavior in any way. Is I do research that socially critical. He was the economist who was leading the charge of understanding why a lot of minority students don't do well in school. So this it's important. But what does that have to do with whether or

not he's a pig. So here's the question is if someone is doing research that's socially important, are supposed they're on the verge of a cure for cancer and we find out they're a pig, you know, do we should they still have a career? You know, if there's all these other positive externalities for society. I could so you just had the bishop six years prison sentence in Australia.

You could see throughout history that the powerful will say, look, there have been some bad behavior, but we're literally doing God's work and therefore we should be exempt from this. Um. You know, pick a person. Um. John Lennon was supposed to be a bit of a hardass, and you don't want to go through the history of literature to find out how big a jerk half the writers out there are.

If we but and then artists and paintings and things like that, if we're gonna have a moral purity test on that stuff, your museums will be empty and there'll be nothing on the air waves. However, it doesn't mean they shouldn't suffer the ramifications from So should we separate the value of the art from the artist. But that doesn't give them a free pass in their career, not

at all. And I didn't honestly know the answer, so spoke to philosopher, which was just I love talking to philosophers because they always remind you know nothing about anything um. And he pointed out that if you are doing important work, like scientific works, but either economics or hard science, and you're on the verge of really making the world important, it's actually the more the pressure on you to behave well is even higher because you're letting down especially no

good work happens alone. You're letting down everyone's effort, and it's you know, not everyone gets the opportunity and resources to perform research like this, and so if you're threatening it with your behavior, it actually should be held to

an even higher standard. So the question is, according to the philosopher, then once this bad behavior is identified, do you stop the person from doing research or do you just put a higher level of HR scrutiny in and sit that person down and say you were putting millions of people's lives at risk because you're this close to a cure for cancer. And if you can't keep your hands off your research assistant, here's what's going to happen.

I mean, how do you how do you resolve that? Well, he was more in favor of just jettising them, I know, jetting the assistance. No, the researcher, Um, the philosopher said just fire the guy. Yeah, it's like whoever it is. Yeah, he's like, we need, we need to have standards, and you know, as he said, you know, yeah we might have we might have a longer wait before a cure for cancer. But he's like, but what about the behavior

he did all along? Maybe some would have come up with a cure for cancer even earlier and he discouraged them, and maybe we'd have had a cancer fifteen years ago his behavior. So so you can't use as an excuse. Bad behavior has to be punished, because you don't know what sort of that's the I love a classic counterfaction on that. That's a perfect one. Um, last one before we get to our favorite questions. Actually there are two here.

They're fascinating. Um, let's start with this one. Are millennials the wealthiest generation? They could be I think, you know, I'm tired eventually maybe, but today they certainly don't feel that way. Well, I'm a life cyclist, right, so when I think about wealth lifecle, I think about all your assets. So I think of human capital, which in life cycle

economics is the value of your future earnings. So for me, the idea that people don't millennials don't own houses and instead they have student debt doesn't seem to me like they've made a huge investment in their future earnings and education. It's not perfect. Is correlated with much higher lifetime earnings, true, but the issue that they've appropriately raised you're an n y U. It's the most expensive tuition in America sixty three thousand dollars or something insane a year. UM. I

went to a state school. I want Stony Brook. My tuition was four fifty semester. Even today it's like five thousand a semester, which seems like a bargain. Um. Students today are paying prices for education that are just so vastly out of whack with what they were like forty fifty, sixty years or even twenty five years ago, it was much much cheaper relative to the total cost of living to go to school. So are they going to get the same return on their investment in education or have

things just completely run them up? Well, definitely they're getting Uh. Well, it's hard to say. I mean, we can't predict the future. I mean, so far it does seem I mean, I'm not sure if there's much of value in going to school over Stonybrook. Probably you're you're gonna do just as well going to a good public school. Yes, I couldn't get into stony Brook today with my grades. Back then I was in a little bit of the value between the boomers and the gen xers. And the same thing

with grad school. I couldn't get into grad school. Uh with to my grad school. Uh, y you that I got into way back when. So some of it's just dumb luck when you're born. But the other aspect of is what, um, what sort of return are are are these current graduates? What should they expect going forward? Explain

why you say potentially they're the wealthiest generation. Well, I think when people look at the outcome firm education, they are too shortsighted because you don't often like I mean, I didn't enter the labor market really officially until I finished grad school was almost thirty. And my earnings well, actually my first job is unpaid. Um, you know, weren't that great. But when you're looking, when you think of

the payoff from human capital, it's your lifetime earnings. And often out of school, you're gonna earn less than someone who you know didn't go to college. But the trajectory of your earnings as follows a much steeper path. So they've they've been working for a few years, they have of a series of raises. You're starting up below them, but you're gonna as a college or grad student, you're gonna accelerate way past them. And you also face less risk.

I mean, the unemployment rates for college grads is much much lower. I'm sensing a theme with you. I don't know what it is, so I only have you for another ten minutes. Let's jump to my favorite questions. These are what we ask all of our guests. Um, tell us the first car you ever owned? Year making model? Well, I've never actually technically owned a car, but in high school I did drive Inde Okay, I love that car. Oh it lasts when two thousand miles, which in the

nineties was a really big deal. That was a little two seater. They were you couldn't you couldn't destroy them. It wasn't the fastest car in the world. You could get them with a stick shift, which was nice back then that it was a stick st Oh there you go, so you drive by the way Today. I call stick shifts millennial anti theft divience because that's what they effectively are. So what's the most important thing we don't know about Alison shre ag Um, well, you wouldn't know from the

book title. But I'm just really a risk nerd. I mean, I guess I don't know if that's not surprising. Um No, that's not a shocker. You read the book and it's like this is it should say Alison Schraeger comma PhD risk nerd. So that that's not a big surprise that you think of yourself as a risk nerd. Maybe that's a well, I guess. I also I wasn't always Like in college, I had a job in Alaska selling incense. Incense in Alaska? Why would they need incense in Alaska?

Is there that much you would think of if anything smells like the Great Outdoor was a fishing village. Oh say no more. Yeah, that's very that's very funny. So I know the answer to this, but I have to ask who are your early mentors. Obviously Bob Merton, So tell us a little bit about what he taught you,

because he's clearly fascinating and storied person. Well, he just taught me finance, which you know I went to I did an eCOM PhD, so it wasn't like I wasn't exposed to it, but my program it was very empirical, So I just thought financial economists just crunch data is looking for deviations of the efficient markets hypothesis, and I thought it was not very interesting and sort of corrupt. But then when I met Bob and learned what financial theory was, it really turned me onto theory too. In

a way. I was always much more empirically oriented of how to think about the world and how to see the world in terms of a risk lens, and how to see risk problems everywhere and how they're driving all markets, not just financial markets. So he was really like your post doc work. He was. It was a very sort of long, intense postdoc I had good training as an as a graduate student too, but it sort of readied

me to really fully embrace all of his lessons. So let's talk about investors and others who influenced the way you look at the world of risk. Who who do you consider to be UM important thinkers that affected the way you perceived the world um, investors, investors, or or anyone. Really you mentioned Peter Bernstein, who who affected the way you perceive UM the world of risk? Certainly? Peter Bernstein also said I worked at d f A for a number of years. So David Booth, Um, when did you

work at d f A two thousand ten? Oh? So really that was in fairly They were already fairly developed and running hundreds of billions of dollars by then, and it was it was a great experience for me because I was working on a project that they were all very interested in. So every two weeks I would have these meetings with Gene Fama, Ken French Merton, David booth

and EDWARDA. Rippetto who is the U and we would just because we were having to calibrate this very complicated interest rate model I was working on, and we would just debate the path of interest rates, and I learned That's where I learned a lot of my finance was just seeing obviously Geene and Bob go at it and you know, with the influences of David Booth, who's just a real market guy. And this was pre uh will you when when Fama won the Nobel was just before

so right before quite quite. That's some collection of mentors and inflot It's interesting because they're smart in such different ways. Huh. So we mentioned Um Against the Gods. What are some of your other favorite books? Well, that obviously anything in Peter Bernstein writes, but I also just I love memoirs. Really, yeah, give us an example. I love just kids like Patti Smith. I just read Educated, which I hate write loving popular books,

but I really loved that wrote Educated. Was it, Tara Westover? Don't ask me. Yeah, it's just it's outside of mine. It's just just so beautifully written. Oh no kidding. What What other memoirs have you read that really resonated with you? By the way, I read two books on vacation. Yours was one of them, and then McCullough's Um The Right Brothers was quite fascinating. If you're if you're interested in flight and or um, that's really less of a memoir

more of a biography. All right, skip that, give us one more book. So you mentioned you mentioned two, Um hit hit us with the third. By the way, this is the question. I get more email about this point. What was that book? The person I mentioned on? I get more email about this than anything. It's a stressful question because I feel like it's so personal and revealing. Yes, um, and what makes it so good? And especially because I read a lot of crap because you know you finished crap.

You know. When I was doing book research, I had this idea that Chris Jenner was this risk mastermind because look at what she's built. And I so I read her biography thinking maybe I'll include her, and it turns out she didn't have a good risk strategy, so I couldn't um right place, right time? Is that all about? She takes advantage? I mean, and it's like this extreme level of diversification where she literally any opportunity that comes her away, she seizes on it and she does work hard.

There's nothing like strategic. It's sort of or if it's sort of as well, like a Donald Trump thing. It's like well, if this blows up, I have something else to distry people with, because I've got ninety gazillion things going. So it's like we have a debit card that pour people off. Oh look, here's a sex tape, you know. But I remember I was reading her book on the subway and I had this realization, like I've never read

Anna Karna, but I've read this. Um. I'm gonna say you probably picked the wrong one of the two, just just to hypothesize it. Um. Alright, so here's here's a question that also is uh personal and probing. Tell us about a time you failed and what you learned from the experience. And by the way, you detailed some personal failures. Yeah, I fell a lot. You don't. You don't show away from that, No, I mean my first year of grad school,

I think I failed almost all my comps. I mean largely because I was doing a quantitative PhD with no math backgrounds UM. And it was the hardest failure I've ever gone through because it was the biggest intellectual achievement I'd ever done, which is I taught myself six years worth of math myself in my free time. My first year of grad school, I never intellectually had grown so

much from anything and never achieved so much. And I still, you know, at the end of the day, you're still taking a math exam and you're being judged against Korean math champion. No matter how much math you learned quickly, you're not going to stack up, so you're going to fail. Meaning the rest of the student base was hardcore math people. Yeah, and I was just reading math textbooks in my free time,

which wasn't all much. I wasn't sleeping. I was just reading, working through entire math textbooks to try to do my homework. That sounds horrible, and yeah, it was horrible. I was such an unhappy person. I kind of started developing weird social tics. And then I went through all of this, never slept for a year, just working through math textbooks, and I still just failed everything. And I mean that

was obviously just I was devastated. I'm gonna blame the lack of sleep because that affects God want to function it, you know. And it was like I had time to

get to retake them. And when I got to finally rest and have all that knowledge should have marinate in me, I realized how much I knew and I mean, I think what I learned from that experience is, you know, if you really want something, you know, I mean, there's a point you have to cut cut loose, you just you you can't take the first failure because you know, no one remembers that you failed your first year exam. All they remembers that you graduated. Huh. That's that's an

interesting observation. So now let me ask you the flip question. What do you do for fun? When do you do when you're not failing math exams? I play bridge? Really yeah, my mother plays bridge, my wife plays bridge. This has become like a giant thing. Now I'm part of this great bridge group of all these intellectuals. There's a Field medal winner, last of the last one, but mixed it. But it's just a very humble, low key group. H really quite quite interesting. Um what are you most excited

about in the future direction of the risk industry? I hank technology. I mean everyone else is sort of scared of it, but I think it's gonna sort of take us to some interesting places. Interest interesting. I don't necessarily disagree. Um, So if a millennial or recent college student came up to you and asked you for career advice about going into economics, risk or academia. What what sort of advice would you give them? Find the smartest person you can

and attach yourself to them. It's funny you say that that was my farthest advice to me when I went to gratz. Did it work? Um? More or less? Actually it began as joining track in high school. Find the fastest guy, keep up with him. And then when I went to grad school, he said, Hey, remember the advice I gave you about track. I'm going to give you the same exact advice, find the smartest And I'm like, Dad, I'm way ahead of you. I already I already had

thought about that. So how does that manifest itself for millennial or college graduate? How would they actually go about doing that? When you're in a job, I said, find the smartest person in the room and it should never be you, um or there's something wrong um, and try to get them to mentor you and be open to it. And you know, anyway, contrary all these perceptions of millennials being no it alls, I find that the millennials I work with are always looking to learn. Um. Maybe I've

just been lucky. I don't know if no it alls is the right, uh right description. They're definitely hard working, and they have areas that they have great strengths in, and I think the the biggest knock is their weaknesses. They're not interested in working on UM. But I think they've gotten a bad having worked with them for five years in a firm, H do you think they've gotten a bad rap. Yeah. I think they're the same as

every other generation. You got some noisy outliers, and I think with social media the noisy outliers voices are amplified. That's a great observation. I think on average, they're just like everyone else. That that makes perfect sense. UM. Although there they grew up in such a unique like think about what you grew up in and then what people born in ten or twenty years after you growing up in technology is this thing that's kind of cool on this id. They're immersed in it from birth. It's a

whole different headspace. So yeah, I mean it's it's very different. I think their brains probably formed differently to some degree. But again and again, I think ultimately even college students, the ones I've interacted with from teaching are also really open to debate in new ideas and even uncomfortable ideas. Again, it's just the noisy outliers. That's that's quite fascinating. Um and our final question, what do you know about the world of risk and economics today that you wish you

knew fifteen twenty years ago when you were just graduating. Well, that's when I was starting grad school, and you know, I chose macro, and macro traditionally has not incorporated risk at all. I didn't realize how fundamental that it was to the economy. I thought, you know, I was studying sort of either the neo classical Kensie or new Kynsian models, where you know, if you do government spending, this is what happens. Where if I was doing finance, I would

think of how does that impact markets? What are the range of things that happened. So I wish I knew about risk because I didn't really, So, Matt, I'm shocked to even hear that I don't have an economics background. It's just I play an economist on TV. How how is it possible that macro economics does not incorporate any analysis or study of risk? That seems shocking. It is is actually, you know, people don't talk about this because

other things get attention. But I just went to a conference two or three weeks ago that Lars Hanson and Antilope put on about how can we incorporate finance into macro how can we put risk into macro models? And I think this was amongst academics, the big takeaway from the financial crisis. Then law macro models have no meaningful rule for financial sector, so how are you gonna even

capture systemic risk? So this is really where like hardcore economists, but they've been working on post crisis, and it's it's a hard problem because any economic model has to make choices and once you bring risk in, they get more complicated.

This is a controversial thing to say. I mean, I'm not gonna sound sexy to most people, but to small group economist is I now feel strongly I don't think anyone agrees with me that finance basic finance should be part of basic economics training because it is such a fundamental part of understanding how the economy works. Meaning basic

finance plus an understanding of risk. Well yeah, well you you get a basic understanding of risk if you learn finance because finance is all the principles of risk, because finance and economics is just howcom study risk. It just happens to be in financial markets because that's where the data is. So I think it should be, you know, undergraduate macro micro finance. Quite fascinating. We have been speaking

to Alison Schraeger. She is the author of An Economist Walks Into a Brothel, as well as co founder of the life Cycle Financial Partners UH and an adject professor at n y U and journalists at Courts. If you enjoy this conversation, we'll be sure look up an Inch or down an inch on Apple iTunes, UH, Stitcher, Overcast, Bloomberg dot com, wherever you find your favorite podcast. We love your comments, feedback and suggestions right to us at

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