Faculty focus: Blake LeBaron talks video games and financial forecasting
Abram L. and Thelma Sachar Professor of International Economics; Director of PhD Program
- ECON/FIN 250a Forecasting in Finance and Economics
- FIN 250f Financial Forecasting
- FIN 254f Financial Manias and Crises
- FIN 285a Computer Simulations and Risk Assesment
“There are all sorts of contexts in life in which we are forced to make hard predictions, so you have to be equipped with the skills to make an intelligent guess about the future,”
When Blake LeBaron—Abram L. and Thelma Sachar Professor of International Economics at Brandeis IBS—isn’t hiking through New Hampshire or downhill skiing, he is developing agent-based financial modeling which gives economists the tools necessary to understand complex market patterns and assess risks, and has the potential to help foresee and understand key market failures, such as the Flash Crash of 2010.
“With agent-based modeling, you are essentially building a market with interacting traders trading against each other,” says LeBaron, who heads the PhD Program at Brandeis IBS. “Everything is computer generated, and you can watch different market types and strategies play off against each other. It’s like a big video game happening onscreen.”
LeBaron, who holds both a Ph.D. and M.A. in economics from University of Chicago, reveals that he originally wanted to become an astronomer, but enjoyed introductory economics courses so much that he decided to follow that field, even as an undergraduate computer science major.
One of the most important aspects of present day finance is financial and economic forecasting. According to LeBaron, it is an underappreciated science.
“There are all sorts of contexts in life in which we are forced to make hard predictions. If you’re setting up an oil refinery, you don’t really know what is going to happen in the oil market, and so you have to be equipped with the skills to make an intelligent guess about the future,” he says. “You can’t just throw your hands up and say ‘I don’t have a clue!’. Forecasting is difficult because it isn’t an exact science, but you can’t escape it. ”
Besides forecasting, LeBaron also focuses his teaching on computer simulation and risk assessment, which he feels is an extremely important skill for business-school graduates trying to find employment in today’s job market. LeBaron says that firms are increasingly realizing that they have to be equipped to recognize and manage the risks they face in volatile markets; risk assessment is a field he is convinced will keep drawing business graduates in.
His advice: Don’t limit your job search to only financial institutions such as banks and investment firms. He uses the example of Wal-Mart, explaining that it is a huge corporation with large data sets; it would have the same complex financial problems as Goldman Sachs, but would be a more interesting experience.
LeBaron finds that teaching at Brandeis IBS is very different from any other institution he has been part of; the school’s small size allows for a lot of diverse interdisciplinary work. LeBaron is currently collaborating with various other departments at Brandeis under the Integrative Graduate Education and Research Traineeship (IGERT) grant—awarded to the university in 2011—which is designed to foster interdisciplinary research and education for graduate students across the mathematical and theoretical sciences, including chemistry, physics, mathematics, neuroscience and economics.
He credits the school’s diverse demographic for creating such a distinct educational experience.
“What sets Brandeis IBS students apart is that they ask questions, they are internationally literate, and they are highly motivated individuals who know exactly what they want to get out of every lecture, course and experience.”
LeBaron has high hopes for the future of financial forecasting. He says the field is experiencing a revolution, the game-changer being the advent of social media, which has allowed a wide variety of information to be accessible in real time.
In light of this, he is constantly updating his courses to make them relevant to the changing times. Inspired by teaching introductory level finance courses to undergraduates, he hopes to create a finance course with universal appeal aimed at providing basic financial information and skills, which he jokingly refers to as “Finance for the General Population.”
LeBaron will be continuing to work on agent-based financial market simulations, on which he has published a series of papers in journals such as the American Economic Review and the Journal of International Economics. He says that what ultimately keeps him motivated in his research and teachings is the curiosity of his students and the way their questions keep his perspective fresh.
“I take joy in the way they push me to think about things in new ways,” he says. “For them, there is always a new problem to try and figure out.”