Financial Econometrics and Empirical Market Microstructure
Innovation Comes from the Periphery
It therefore makes sense that innovative insights often emerge from the periphery, free from the pressures of groupthink. Michael Lewis explores this theme in his bestselling “The Big Short: Inside The Doomsday Machine” (2010). The visionaries who recognize and acted on the inevitable collapse of subprime bonds before everyone else were a diverse collection of renegades, often at the periphery of the financial community. This included outsiders like Dr. Michael Burry, a medical doctor with Asperger’s turned fund manager, and the two inexperienced founders of Cornwall Capital, who not too long ago had started their fund with $100,000 in a Berkeley apartment.[19]
Liberated from the confines of groupthink, outsiders are more receptive to new and disruptive information. Robert Shiller fits this archetypal Innovator at the periphery, inspired by diverse interests:
I think I’m a polymath. I’m interested in everything. When I was a senior in college at the University of Michigan, I was dazzled by the choice set that we had. Young people, you can do whatever you want, and I was disappointed that I had to choose one, realistically. You like to be a renaissance man and do everything. I took long walks trying to decide whether I wanted to be a physicist or a medical doctor or a sociologist, whatever-a scientist, an astronomer. (Grove 2008)
Another characteristic of visionary Innovators is the ability to integrate information from a variety of sources and to connect the dots. Nouriel Roubini sources information from taxi drivers to Finance Ministers when traveling. After being named as one of Time Magazines’ 100 Most Influential People of the World, he explained:
In many ways I simply connected the dot in these different strands of thinking and warnings... Kenneth Rogoff ... warned early on about... the US current account deficits and of the global imbalances; Raghu Rajan presented... analyses of the agency problems and incentive distortions deriving from compensation schemes in financial institutions; ... Stephen Roach, David Rosenberg... warned about the shopped-out, saving-less, bubble - addict and debt-burdened US consumer; ... William White and his colleagues at the BIS were among the first... to analyze how the “Great Moderation” may paradoxically lead to “Financial Instability”, asset and credit bubbles and financial crises (Roubini 2009)
