Professor Milo Bianchi is a distinguished scholar in the field of finance at the Toulouse School of Economics, where he currently leads the FinTech and Innovation (FIT-IN) program.
He is actively involved in research initiatives at both the Center for Sustainable Finance and the Center for Digital Finance. With a rich academic background, Professor Bianchi has held research positions at prestigious institutions such as the Massachusetts Institute of Technology, the Paris School of Economics, University College London, and Shanghai University of Finance and Economics.
His research primarily focuses on the intersection of financial technology and sustainable finance, with a particular emphasis on understanding the behavioral patterns of individual investors.
Q1: Professor Bianchi, it's a great honor to have you at Fudan University to lecture on behavioral finance. Looking back at the six lectures, what’s the most important thing that you want the students to learn?
Professor Bianchi: I am very pleased to teach at Fudan. The main goal of this course is to cultivate students' critical thinking. This includes not only critically thinking about the assumptions and research paradigms in economics and finance but also about the real world. Students should be observant of investor behavior and financial market phenomena and learn how to critically analyze these market phenomena.
Q2: In March of this year, Daniel Kahneman, the pioneer of behavioral finance and Nobel laureate in economics, sadly passed away. His research in psychology, particularly on human decision biases and intuitive thinking, has inspired numerous economists. How do you think incorporating psychology into financial economics research has altered the research paradigm?
Professor Bianchi: Daniel was a very important scholar in behavioral economics and finance. I had the chance to meet him when he received the Nobel Prize in Stockholm, when I was still a young scholar. His work had a significant impact on my research. I think the most important influence of his work on economic research is that it encouraged economists to reconsider the psychological foundations of the assumptions in economics. Many economists never questioned the basis of these assumptions; they simply assumed that economic agents are perfectly rational and act according to standard models.
Q3: As you mentioned in class, behavioral finance arose from the premise that the standard homo economicus paradigm isn't always applicable, and financial markets may exhibit inefficiencies. This contradicts modern financial theory built upon the Capital Asset Pricing Model (CAPM) and Efficient Market Hypothesis (EMH). How do you perceive the relationship between traditional financial theory and behavioral finance theory?
Professor Bianchi: People often find that traditional financial theories cannot explain certain phenomena in real financial markets, and that’s why behavioral finance emerged. Behavioral finance theory is derived from traditional financial theories, but it enriches these models, making them more applicable to explaining and predicting real-world financial market phenomena. Traditional finance theories have also begun to embrace behavioral finance, incorporating certain behavioral factors into their models. Therefore, I believe the boundary between behavioral finance and traditional finance is becoming increasingly blurred.
Q4:An important research area in behavioral finance is asset bubbles. It is generally believed that the higher the proportion of completely rational investors, the lower the likelihood of bubbles occurring. However, looking back at the global financial history of the past 200 years, with the increasing presence of rational and professional investors, we observe a rising frequency of bubbles occurring worldwide rather than a decrease. What are your insights on this phenomenon?
Professor Bianchi: I agree with your observation. Looking back in history, we can see many financial bubbles, and I believe we will continue to witness many more in the future. Therefore, having more rational investors does not necessarily reduce the likelihood of bubbles. This is because rational, experienced investors may not even realize a bubble is forming, and they may not know how to time buying or selling financial assets.
Moreover, there are always new investors entering the financial markets, who may lack experience and are more likely to be influenced by speculative phenomena or be attracted to new financial products. So, as we discussed in class, this underscores the need for people to understand the financial risks they face, but I believe that even if markets become more rational, we will still see financial bubbles in the future.
Q5:What significant issues in the field of behavioral finance do you think require further research in the future?
Professor Bianchi: There are many interesting topics that need further research, and every scholar has their own perspective. Personally, I think investor behavior, especially in the real estate financial markets, requires more research in the future. This is because investors are becoming increasingly active in the real estate market, and financial decisions in this market are very complex and can have long-term impacts on their lives. Some investors may not have the ability to make the right financial decisions. Therefore, extensive research is needed to understand their investment behavior and think about how to improve it.
Q6:Another area of your research is financial technology. Fintech has enhanced the efficiency of financial services, catering to diverse financial needs. However, it also brings risks due to insufficient financial education and consumer protection, such as privacy breaches, algorithmic discrimination, and credit risks. How do you think we should address the opportunities and challenges brought by fintech?
Professor Bianchi: Fintech has indeed brought many opportunities, such as expanding financial services to people who previously had no access to them and customizing services for various customers based on new information sources. As you pointed out, the risks brought by fintech are also very important.
There are two key ways to address these issues: one is to promote financial education to ensure that investors and clients understand the types of risks they face and the types of products available to them; the second is consumer protection, where legislators and regulators should recognize that not all consumers have the necessary skills and experience to understand financial products, so regulations should protect them from making poor decisions.
Q7:I noticed you're the program operations lead for the FIT IN Initiative, aiming to provide constructive suggestions for designing and regulating interoperable digital financial service systems in low- and middle-income countries. Could you provide us with a deeper insight into this project and its current achievements?
Professor Bianchi: The FIT IN project, whose name represents Financial Inclusion and Interoperability, focuses on two main aspects. The first is financial inclusion, which is how to expand financial services to underserved or excluded populations. The second is interoperability, which is how to promote market competition among financial service providers through information sharing.
The project aims to address several key issues, such as how to design incentives that balance competition and cooperation in the digital payments market, how to manage key assets like infrastructure and data, and the impact of interoperability in digital payments markets on the welfare of consumers and businesses.
Q8:Thank you for your guidance. I'd like to know more about your academic journey. How did you embark on the path of financial economics research? Furthermore, how did you develop a strong interest in behavioral finance?
Professor Bianchi: Like many of my peers, I initially chose to study economics because it is a very important social science that helps us understand and change the world. As we grow older, we realize that understanding and changing the world is very difficult, but it remains the core goal of studying economics. As for behavioral finance, this field is very interesting to me. We can build theories and models that help researchers better understand the world and improve people’s financial investment decisions.
Q9:How do you perceive the relationship between theoretical analysis and empirical analysis in economic research? Few studies manage to integrate the two well. What are your insights on this?
Professor Bianchi: I strongly agree with your point that theoretical and empirical analysis should be well integrated in economics research. If scholars conducting theoretical research refuse to engage with those doing empirical analysis, the development of economics as a discipline will stagnate. Ideally, empirical research in economics should be built on theory and should also help guide the development of theory, helping us identify theories and models that are useful for understanding the real world.
The hypotheses we propose in theoretical analysis should come from insights into the real world, and the predictions we make in theoretical analysis should be subject to empirical testing. Therefore, when conducting economic research, we should integrate both aspects organically, rather than focusing on one while neglecting the other.
Q10:You have mentored many doctoral students and established good connections with many scholars, including those from China. What qualities and skills do you hope to see in doctoral students and young scholars?
Professor Bianchi: I believe the most important quality for young scholars is curiosity. You should be curious not only about cutting-edge research but also about the real world. So, I think stimulating and cultivating curiosity is the most important skill. Of course, you also need to work hard and maintain a continuous passion. Although this field can be highly competitive, and you have to publish in good journals, what truly matters is to maintain curiosity and a thirst for knowledge.
Q11:Many students feel uncertain about whether to pursue a career in economic research. Do you have any valuable advice on this matter?
Professor Bianchi: First, ask yourself whether you enjoy the process of economic research. Do you enjoy listening to other scholars discuss their research progress, reading the latest papers published in journals, or talking about economic topics with friends? If you find enjoyment in these activities, that will be an important foundation for your future career in economics research. At the same time, as the competition in academic research becomes fiercer, PhD students and young scholars face increasing pressure.
But you can try to find meaning and value in this work. You can do things that are directly relevant to the real world, help people make better decisions, and assist governments in better regulating markets. In short, economic research can have a significant impact on society.
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Source: School of Economy, Fudan University
