Ivo Welch: A finance expert who gives away his work

PUBLISHED

March 24, 2023

As one of the world’s leading finance researchers, UCLA Professor Ivo Welch could be expected to make savvy business decisions. Instead, he spent years writing his books before giving them away for free. A German who happens to be the son of a Holocaust survivor fond of Germany, private pilot, editor of an academic journal that aims to reduce research citations instead of increasing them, one-time actor in comic videos, founder of a program to help inner-city kids get into top universities… just who is Ivo Welch?

Play Video

The early years

Ivo was born in the sleepy German town of Schweinfurt in 1963. His Jewish-Polish father had survived Auschwitz; his mother was the daughter of deaf-mutes – neither had been to university. They were determined to offer Ivo educational opportunities they never had. After getting his high school diploma in Germany, he went on to study at Columbia University, followed by a PhD in financial economics at the University of Chicago. He made his mark early through his work on so-called informational cascades, a theory that explains under what conditions decision-makers emulate others’ actions even if this contradicts their own information. This theory has been applied to a wide variety of decisions, from how corporations enter financial markets, to mating selection by animals, to social media fads. This work established Ivo’s reputation as a researcher and gave him the freedom to pursue his diverse interests.

Embracing unpopular opinions

Despite or because of being author of the theory of informational cascades, Ivo would question the legitimacy of popular opinions. Much of his time and effort was spent on championing unpopular causes. He founded and continues to edit “Critical Finance Review”, a journal whose goal is to subject celebrated research findings in academic finance to critical re-evaluation. While academic journals typically pride themselves on publishing papers that end up getting cited in future research, the Critical Finance Review does not. If anything, it reduces citations through identifying influential work whose conclusions turn out to be spurious – often in retrospect. According to Ivo, though it may not be pleasant to be on the receiving – or giving – end of sharp criticism, such critical stance is essential for scientific discourse.

Authoring a free textbook

Ivo’s critical eye extends to pedagogy. Having taught finance at such leading universities as Yale, Brown and UCLA, he realized that he was far from convinced by many of the concepts he was teaching his students. For example, he came to believe that it was wrong to teach the Nobel-prize winning Capital Asset Pricing Model, a centerpiece of introductory finance classes, as if it were true. Students must be cautioned that this model is at best of limited use and at worst misleading. Ivo spent years writing his own textbook, in which he aims to teach students to think critically rather than to follow established recipes. After initially distributing his textbook through a major publisher, Ivo chose to make it available for free in digital form. He recently livened up his digital textbook with… humorous educational videos, where he co-stars with a professional comedian; in one of them, the Capital Asset Pricing Model is portrayed by a swaggering pirate captain, whom Ivo’s character inevitably takes down a notch.

Climate change

Similarly to how exploring his reservations about finance teaching led Ivo to write his own textbook, his interest in understanding climate change has led to the book “Global Climate Change: A Pragmatist’s Guide to Moving the Needle”. In Ivo’s own words, “Much of the perspective that you get from either climate activists or fossil fuel shills of which there are quite a lot, is misleading or half true. It turns out that the full truth is much more complicated.” Seeking to share a more objective perspective with the public, he made this book, too, available online for free.

Looking to the future

When not doing research, teaching, flying his small private plane, or spending time with his family, Ivo keeps thinking up new ways he can make a difference in the world. One such project has was helping inner city high school students by pairing them with students from a leading university nearby, an initiative that may have changed many lives. More recently, Ivo has been floating the idea of making a TV series about the impact of overly harsh sentencing laws that are, he believes, not only unjust but also not in society’s best interest. “And that’s what it’s for, for me, for my next 20/30 years,” he concludes. “That’s what I want to do. Do things that are fun and interesting and help other people. That’s it. If I can do that, I’ll be very happy. I will die a very happy person.”

P.S. Ivo has asked us to add that he does not consider himself too interesting, and thus was originally a little reluctant to be interviewed – even though he likes the end result.