"We Are GSM" Video - Meet Professor Victor Stango

How Psychology and Economics Shape Financial Decisions

I study how people use all of the financial products and services that they have access to, whether it's credit cards that they shop for, saving an investment decision, mortgages, or ATM cards, and studying that and, how consumers really approach the decisions that they make in those markets for better or worse, all the differences and nuances that influence their decisions. A lot of them psychological, a lot of them having to do with economics. That really is what feeds my interest in understanding how people work.

And one of the things I've worked on recently is trying to understand how consumers, think about financial decisions, and in all the different areas of their life and all the different ways they could be influenced psychologically by that.

So, why are some people more optimistic about the future? If you are somebody who might have different math abilities than somebody else, then how does that affect how you operate in the market and make these same decisions? How do we tie that back to whether are they going to save enough for retirement?

Turning a Penny Into $1 Billion

I think the study that has had the most impact and that I'm most proud of involves, kind of a boring topic, but an important one, which is compound interest. And what we did there was, try to learn, how people think about it. And there's this famous example that illustrates the challenge a lot of us have, with compounding, which is:

If you started the month with a penny, and that penny doubled in value every day for one month, how much money would you have at the end of the month? And I didn't know the answer to the question when it was asked of me, but it's about $1 billion.

And what that shows is that compounding, that doubling every day, even of a penny can turn into a lot of money later. And of course, that relates to a lot of decisions that people make about saving for retirement and understanding where to put their money, and different people, approach that differently. And some people are, really good at those calculations. Some people, not so much. A lot of people underestimate how much money they would have.

And so what we're doing in our research is trying to figure out how that phenomenon ties to real-world decisions about credit cards people have, or mortgages that they have, or the kinds of savings that they have.

My Passion for Travel, Food, and Family Adventures

I love to travel with my family and plan a trip, around the world. Hopefully, over the next couple of years, my wife and my son that's going to be really exciting. At home, I like to cook. Cook for my family and, eat out, and visit, exciting places around here, too. So, a lot of it's about travel and adventure, though.

We Are GSM.