Finance, technology and interdisciplinarity

The Institute’s USP is rooted in linking research in finance and technology – the latter in two senses, technology in finance itself, and technology in the wider economy – the customer of financial services. A subsidiary aim is to link academic research with industry and the public services. This stance demands interdisciplinarity and it is useful to explore what this means. In this contribution, our Director of Research, Professor Sir Alan Wilson, presents the framework for interdisciplinarity offered in his recent book, Being interdisciplinary.

A first step is to define a system of interest for a research project. In broad terms, this will demand specifying the components of the financial services ecosystem, and those of its customers that are relevant to the project. To fix ideas, consider a project to explore the maximisation of ESG objectives in portfolio construction by an asset management company. The system of interest is based in the elements of the portfolio and hence the wider economy, risk and uncertainty, the companies own market, and the elements of ESG to evaluate those dimensions of the portfolio. The drive into interdisciplinarity comes from posing the question: what is the requisite knowledge base needed by the company to be efficient and effective? This will embrace all the elements of portfolio management (and hence mathematics and statistics), the companies represented in the portfolio (economics, geography and business – national and international), the government and regulatory context (hence politics and public administration), and the elements of ESG (environment, including climate change, the social impacts of investment, and governance – business again). This is a huge agenda, demanding both breadth and depth in the company’s staff and access to top-class reference material. Parcelling the knowledge into disciplinary siloes will be a very inefficient way of handling this hence the need for interdisciplinary teams. There is a big challenge here that can be research-informed.

Being interdisciplinary digs more deeply into the systems approach. Once the system of interest for a project is defined, the current understanding of how it works can be assembled – let’s call this the available theory.  There will then be a package of methods to formally deploy this knowledge base. Think of this as the STM framework – systems, theory, methods – for establishing the knowledge base. There is a second element to this: PDA – policy, design and analysis. STM is essentially the analysis and is the link to PDA. Policy is about objectives – both for the research, and for the requirements of research users; design is about inventing solutions, solving problems. The key point here is that analysis alone doesn’t solve problems: creativity and invention kicks. Analysis provides the knowledge base for developing and exploring solutions, and also the tools for evaluating the alternatives. This framework can be applied to the different themes within the Institute’s proposed research strategy. Each theme demands an interdisciplinary approach; and each task within a financial services company will typically need elements of all six themes and hence, within that applied context, an additional kind of interdisciplinarity. We briefly sketch each theme in turn.

Exploring future scenarios: handling uncertainty and risk requires the best accounts of the future that can be assembled. We cannot accurately forecast the future of course. What we can do it to ground our estimates in our knowledge of recent history – another relevant discipline – and then develop scenarios of alternative futures. We can then use these scenarios to test, for example, investment strategies. Establishing this kind of knowledge base is a key element of success in financial services.

Digital finance: there is a long tradition of employing deep tools of mathematics and statistics in finance. What is on offer has been hugely reinforced by developments in computer science and particularly through the ‘big data’ and AI revolutions. This has led to the rise of the fintech industry as a methods’ supplier to the wider financial ecosystem. There are major opportunities here for research and for the application of research; but these opportunities should be embedded in broader interdisciplinary teams.

Portfolio investment and management: the in-depth expertise in this field will be maintained, but can be enormously advanced by research in the two themes above.

ESG and sustainable finance: the major challenges of the present time – climate change, pandemics, social exclusion for example, have re-emphasised the broader responsibilities of companies in contributing to the public good. This is captured in the ESG agenda: environment, social and governance. However, the knowledge base in this area is poor and this offers major research opportunities and potentially some quick wins. This has to move on from box-ticking procedures to adding more depth to the potential for companies of all kinds to contribute to the public objectives encapsulated in ESG.

Behavioural modelling: there is scope for increasing understanding of the responses of clients and customers of financial services to what is on offer to them, directly and indirectly, by way of support. This would further refine the ‘offers’ of financial services’ companies themselves.

There are challenges here for the Institute in developing its research programme. There are even bigger challenges for the companies and organisations (such as regulators) in the vast financial services ecosystem to articulate their research needs and to find effective ways of connecting to academic research. The Institute will be an effective research organisation but will also work to demonstrate the value of research in finance and technology, both to companies in the finance sector, companies in the wider economy, government, and the public at large.