Spotlight - Bruce N. Lehmann
(2008) A Talk with Bruce Lehmann, Professor of Economics and Finance
 Professor Lehmann (in red) with IR/PS faculty and alumni |
Bruce Lehmann likes to look at things differently. Stressing the idea that economics is a social science, Lehmann tends to mull over different examples in which his field of study, financial economics, can be looked at through a more pensive lens. |
Lehmann spent the 2007-2008 academic year on sabbatical at the Division of Humanities and Social Sciences at CalTech, where there are only 31 faculty members to span all of social science. “I spent a lot of time talking to people who think differently,” Lehmann explains. “At Caltech all you have to do is mention something you're thinking about and six really smart people who know absolutely nothing about the subject will be willing to jump right in. I have never been at a school with such extraordinary diversity across such a small number of scholars.”
Caltech is a main center of research in experimental economics, and Lehmann explored this area extensively. He began his time there feeling skeptical about what can be learned about economics from experiments, but he came away with a lot of respect for the field. “Sometimes you learn about the characteristics of the undergraduates at CalTech, not about how real people behave in real economic situations,” says Lehmann. “But I learned that sometimes you discover a lot about economics, including the sense in which many of the ideas that are the foundations of economics are part of a true theory.”
This focus on experiments suited Lehmann's interests. He explains that his research sometimes focuses on the big picture, when he's looking at theories on the pricing of risk and return in assets markets. Conversely, he also examines the very small picture, the “trade-by-trade” details of a given market. Lehmann considers himself something of a student of financial markets, and he came away from his sabbatical believing that experimental markets at Caltech provided real insight into how real world markets behave. “Caltech undergrads are superb traders,” he says.
In this vein, Lehmann taught an undergraduate course on market microstructure, which is also one of his standard courses at IR/PS. “I teach classes with trading games in them, where I set up a market where a computer generates orders. All the students have to do is be the other side of the market,” says Lehmann. “One thing I learned is that Caltech students are very, very good at doing this.”
To be successful in Lehmann's class, students have to learn to take two important factors into account. First, they must remember that the computer always trades as if it possesses information about the value of the security – but while it is right at times, it's wrong on others. Therefore, students must fear the information content of the computer's orders, but they can reasonably hope that the orders do not reflect valid information. Second, students must take into account the fact that their classmates are in the same boat. Each of them will place too many orders and thus lose money if they ignore what their classmates are doing. “That's why trading is a social science,” Lehmann emphasizes. “Who knew?”
Lehmann likes encouraging students to look deeper into subject matter, which is how teaching helps him further explore his own areas of interest. “The thing I like about doing what I do is that when you teach something, you have to deconstruct it and rebuild it for the students every year, whether it's a Ph.D. class or an undergraduate class or a master's class,” says Lehmann. “I like trying to distill information down to things I can get [my students] to say ‘Yes, I understand.'”
Lehmann is greatly enthusiastic about the time he spent at CalTech, surrounded by new ideas and eager undergraduates, but he is equally enthusiastic about returning to IR/PS. He praises the diverse students who all come with their own set of strengths, ready to think and to learn.
“IR/PS students know who they are,” says Lehmann. “Students in other professional programs typically know where they are going but have no clue who they are. I'll take our students any day.”
For more information about Professor Lehmann's work and areas of expertise, please visit his faculty page.
