The Wisdom of Finance it seems is a primer on the moral hazards undergraduate and more so graduate business students can expect to find once they leave the academy and join Wall Street.

Author Mihir A. Desai employs literature to explain how the principles of business and high finance inform universal human challenges not only in business, but in life.

As a graduate of English Lit and later an MBA, I was a sucker for this kind of book. Indeed, I enjoyed it, if I didn’t think all of the chapters were equally strong, or the morals all that intimidating.

It is substantively a book of moral philosophy.

I ran into my own moral philosopher in business school, the noted Canadian accounting professor Al Rosen, the sort of guy you either loved, or loved to hate. The guy who failed an entire accounting class, but then had to walk it back after the students complained.

What Prof. Rosen taught me — and our relationship wasn’t the easiest — was that numbers masked lies as often as they told the truth, perhaps moreso. And the reason he taught this to his accounting students was that the evolution of accounting was the evolution of storytelling.

If you look at a balance sheet or a profit and loss statement, you were purportedly looking at the viability of a business in a moment of time and that the conventions of accounting storytelling, like “accounts receivable” and “accounts payable” not to mention “fixed assets” were to tell you the value in real time of a business even though none of those values could possibly be right.

The numbers were usually created to pacify the reader, to keep the reader from looking behind the numbers at the underlying value of the business, and the lying liers who wanted you to accept them as truth...usually management. Rosen’s point wasn’t that the numbers were always meant to to disguise malfeasance, just that the nature of the process of storytelling required simplification and gross generalization.

Desai gets at some of this in his chapter about the problem of agency, whether managers are really working for shareholders, or customers, or their employees, or just themselves. This is not necessarily a problem of finance. It is as much a problem of commerce and social psychology.

Economic behaviouralists like Daniel Kahneman, psychologist Dan Ariely, Richard Thaler and Cass Sunstein get into how the mind actually works when people are given moral choices disguised as financial options.

Another book I read recently, “Scarcity: Why Having Too Little Means So Much,” by Sandhills Mullainathan and Eldar Shafir, shows how perceived scarcity can ruin or enhance our decision making, depending on the circumstances.

But today I am dealing with the moral quandary of what to do in a pandemic that will accord with my personal ethics, and the dictates of business. How much loyalty as a businessman I owe to my employees vs my family and their sacrifices on the road to building a viable business.

if I close up my shops and lay people off am I protecting my employees or letting them down and dumping their personal needs on to society. The customers seem to need our goods and services, and the gov’t has classified my business as essential to the economy...so we stay open to the extent that my employees will come in to work.

In other crisis I have simply met the challenges head on and worked harder. In this crisis I have to change directions fast and, because I am at a high risk of infection, have to stay out of my stores for mine and my family’s safety.

There are my obligations to landlords, to suppliers, to the financial institutions, the utilities, and to govt.

These are not easy questions either. And literature, while a nice diversion, doesn’t really help me all that much. ( )

This is the best book on finance that I have ever read. Mihir Desai has an uncanny kmack of drawing parallels between finance, life, and literature. ( )

Just beyond my grasp. That's what I kept thinking when reading this book.

Mihir is a brilliant man tying finance to many different disciplines (literature especially). I could picture sitting to him enthralled in a lecture or just watching him at a dinner table speaking ... His mind moves in fascinating angles.

It would help, as prerequisites, if you read the stories he refers to beforehand. He comes from so many angles Pride and Prejudice, the Simpsons, 1984, The Producers, Steph Curry, Merchants of Venice, Robert Morris (the man who was almost Alexander Hamilton)...

This could be more aptly titled "Philosophy of Finance". I wonder who this book was targeted for? The finance part is pretty basic. Maybe someone with a background in Western literature or philosophy who wants to understand finance?

( )

This book is great mainly because it's a jumping off point to other books/authors I'd not encountered. It is a collection of chapters each nominally about a mainstream/widely accepted economic theory, then illustrated with a lot of great examples from literature and the humanities, in an attempt to make economics and finance more relatable to broader society. I didn't really learn anything about economics from this (it's a pretty basic level), but did find some amazing other books through his references, and the author did a great job of making things interesting/entertaining.

My favorite parts were learning about Robert Morris (https://en.wikipedia.org/wiki/Robert_Morris_(financier)) -- essentially the father of bankruptcy law in the United States -- and the novel/trilogy The Financier by Theodore Dreiser. ( )

The Wisdom of Finance is a book that certainly promises a lot. What lessons can we glean from the academic discipline of finance that will help us lead better everyday lives? In turn, what can examples from art, philosophy, literature, or film provide to help us understand our economic relationships better? Indeed, any volume that manages to conflate in a compelling way the truth and beauty of the humanities with the practical realities of managing financial opportunities would seem to be a noble and intoxicating venture.

And yet, that is not quite what has happened here. Unfortunately, despite the best intentions and considerable erudition that Mihir Desai brings to the project, I found some elements of the book’s development to be too flawed to get past. Starting with the premise that finance can be separated into either asset pricing or corporate finance applications, the author divides the analysis into chapters focusing on a different economic topic—such as diversification, the capital asset pricing model, the use of leverage, or principal-agent problems—that he explains in lay terms while “illuminating” them with fictional and real-life anecdotes.

A recurring problem with this approach is that these illuminations from the humanities are often stretched beyond reason. For instance, the notion that the main character in Herman Melville’s Bartleby, the Scrivener sinks into inaction because he had too much “optionality” in his life is a tortured interpretation, at best. (Incidentally, Bartleby was employed by a law firm and had nothing to do with finance.) Also, the metaphor the author uses to explain the institution of marriage as equivalent to a corporate merger is of limited usefulness beyond explaining the behavior of an extremely small number of families who lived during the Italian Renaissance or the Hapsburg dynasty. Finally, using Lucy’s “muddle” in A Room With a View (i.e., being true to oneself versus satisfying society’s expectations) is a highly questionable example of a principal-agent conflict.

More troubling, though, are the places in the book where the author also gets the economics wrong. Two passages stand out in that regard. First, the discussion of high-beta assets being “…not highly valued because of their limited diversification value” is simply not correct. As a measure of an asset’s systematic risk, beta is calculated as the ratio of the total volatility of the asset and the total volatility of the market, which is then multiplied by the correlation between them. That is, an asset can only have a high beta (i.e., greater than 1.0) if its volatility ratio exceeds 1.0, irrespective of its correlation level. However, this fact did not support the author’s suggestion that we need to deemphasize the high-beta people in our lives because they do not diversify our personal portfolios.

A second inexplicable error occurs near the end of the book when the author tries to reconcile the existence of nefarious and seemingly insatiable characters, such as Gordon Gecko in the film Wall Street or Eric Packer from Don DeLillo’s novel Cosmopolis, with what he sees as the true wisdom in finance. To support his notion that greed is not inherent in the discipline, he describes the concept of the diminishing marginal utility of wealth as follows: “Beneath all of finance is this underlying idea: the pursuit of more will yield less and less. And any expectation other than that is not consistent with the ideas of finance. The game of accumulation is one that will leave one less and less satisfied as one gains more and more.” That interpretation of what he calls the “bedrock idea of finance” is so egregiously wrong that it is truly shocking to have come from an economist of the author’s stature. Diminishing marginal utility refers to a situation in which each additional dollar you acquire makes you better off than before, but at a decreasing rate. So, if you achieved, say, 100 units of satisfaction from the last dollar you received, the next dollar would only increase your happiness by 99 units. Clearly, though, you would still have the incentive to acquire more dollars because you would still be better off when you do. I suspect that Desai actually understands this but, once again, an accurate portrayal of finance theory would not have been consistent with the argument he wants to make.

I suppose it is worth noting that this is a book that I really wanted to love. Simply recognizing that finance is a topic inextricably linked to everything we do in life is a valuable enterprise to undertake. In fact, the author succeeds in his goals in many ways; his non-technical explanations of the corporate finance topics are very good and the link he creates between the financial topic of leverage and the commitments we make in our lives (e.g., friendships, marriage, having children) is a profound and useful way to look at the world. I only wish that that the entire volume had risen to that level. ( )