The School of Management announced this week that its International Center for Finance has received the Whitebox Advisors Grant for Behavioral Finance. Administrators said the SOM intends to use the funds to establish Yale as a premier center for cutting-edge research on connections between economics and human behavior.
The ICF received the grant — which will provide $400,000 annually for the next four years — from Andrew Redleaf ’78 GRD ’78, who founded the investment firm Whitebox Strategies. ICF administrators said the center will distribute the money to researchers who are involved in projects related to behavioral finance in a variety of Yale departments, including economics, history, psychology and sociology. They said they will also use the funds to hold conferences and bring visiting scholars to the University.
“I hope that this grant will help create a strength at the Yale School of Management in behavioral finance,” economics professor and ICF Fellow Robert Shiller said. “I don’t know if there’s [currently] any place in the U.S. that you would really single out as the best.”
Shiller described behavioral finance as “the juncture of psychology and economics.” He directs the Yale SOM Stock Market Confidence Indexes, which use surveys to measure how investors’ views reflect and affect stock market prices, as well as similar studies of real estate markets.
SOM Professor and ICF Director Will Goetzmann said the grant will enable the SOM to move to bring research efforts like Shiller’s to the “next level.”
“Right now we have a strong reputation, but research depends upon funding, and this grant has been a wonderful boon to us in that regard,” he said.
Currently, for instance, the ICF only generates the stock market confidence indexes with respect to U.S. investors. Goetzmann said the grant money will enable the ICF to expand the project to other countries, allowing comparison of investor behavior in different parts of the world.
“A lot of times, economists and psychologists either work with archival data or do experiments in a laboratory, but we rarely get the chance to gather information in real time from real economic decision-makers,” Goetzmann said. “The wonderful thing about getting a grant like this is that it allows us to collect and study information from real market participants.”
The grant is the product of approximately a year of discussion with Redleaf, who has a particular interest in behavioral finance, ICF administrators said.
ICF Executive Director Christos Cabolis said distribution of the funds will begin this summer. Shiller said ICF fellows and administrators will meet regularly to evaluate researchers’ proposals.
“Behavioral finance is an area that is of great interest to us,” Cabolis said. “We want to expand it. We want to create an environment that will foster cutting-edge research.”