You do not really need a reason to reread Jane Austen, as most of us know after a summer of revisiting her novels to mark her 200th death anniversary. Now Mihir Desai, a professor at Harvard Business School, has chosen to nudge us back to her work again. Extracting life hacks from Pride and Prejudice is an ongoing project, and the title of William Deresiewicz’s recent and riveting A Jane Austen Education: How Six Novels Taught Me About Love, Friendship, and the Things That Really Matter sums up the the nature of this popular subgenre. But who’d have thought Austen was on to the basics of risk management that keep financiers going? In The Wisdom of Finance: Discovering Humanity in the World of Risk and Return , a book that expands on a lecture he delivered to a graduating class, Desai focuses on what he calls, understandably, “the most cringeworthy marriage proposal ever” to explain risk-aversion, or risk-exposure.
Lizzy versus Charlotte
When the fortune-less Lizzy Bennet turns down a marriage proposal from the insufferable Mr. Collins, he tries to persuade her to change her mind not by affirming his affection, but by explaining what she is losing: “It is by no means certain that another offer of marriage may ever be made to you. Your portion [of income] is unhappily so small that it will in all likelihood undo the effects of your loveliness and amiable qualifications.” The spunky Ms. Bennet stands her ground undeterred by “further risk exposure”, as Desai terms it, and lives to find true love, Darcy, another day. Her amiable friend Charlotte, however, limits such exposure and accepts Mr. Collins’s proposal when it comes her way.
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Such dilemmas come our way all the time, Desai says — when we weigh the expense of further education, or the pros and cons of accepting a job offer as opposed to waiting for a better fit, for instance. “These questions implicitly consider risk and return and require you to think about how to allocate your time, energy, and resources given a set of choices in the face of an uncertain future,” he writes. “This allocation problem is precisely the problem at the heart of finance.”
Desai’s focus, however, is not on Austen — her book is just a small part of this project, which is no less than to take “the unorthodox position that viewing finance through the prism of the humanities will help us restore humanity to finance”. The book has a dual objective: to use the stories we know well to introduce the layperson to the core, and ennobling, mission of finance, and to use these stories to remind the practitioners of finance of a higher mission — that their profession is part of a larger tapestry, and to presumably thereby keep them bound to an honourable code. So, the reader is taken on a whirlwind tour, though the work of Dashiell Hammett, Wallace Stevens, Austen, Anthony Trollope, Leo Tolstoy, Willa Cather, among others — and also of the American artist, Jeff Koons, and the 1980s hit film
He cites the example of George Orwell retreating to solitude of the island of Jura to finish his masterpiece
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Two cultures again?
For those like me worried that we’ll never understand the world of finance, The Wisdom of Finance is a reassurance that there may be hope yet, beyond the reminder that no matter how much an old classic may be committed to memory, it can yet be mined for fresh insights. Whether it will trigger thinking about “the chasm that exists between finance and the humanities today”, along the lines of C.P. Snow’s 1959 lecture “The Two Cultures” on the divide between the humanities and the sciences, is not so clear. But in using the great stories to explain the core ideas of finance, as too the instance of greed and fraud that give it a bad name, this riveting slim book does make you wonder, why did nobody think of this before?