Interview with the 2022 economic sciences laureate Philip Dybvig on 6 December 2022 during the Nobel Week in Stockholm, Sweden.

Where does your passion for economics come from? 

Philip Dybvig: That’s a complicated question. I actually have passions for a lot of things. Close to when she passed, my mom taught me something about myself. She said “when you’re a kid, you never came to me and said, mom, I’m bored. I don’t know what to do.” There’s just so many exciting, cool things to do in the world and so many things to learn about. When I was growing up, I was especially passionate about puzzles and games and playing the piano. I read practically all the mystery books in the library and practically all the science fiction books. I kind of went through phases in different things. All of that really helped me to develop.  

I think that playing games gave me a practical feel for probability. I remember I had a little roulette wheel. I had read something about extra sensory perception. It suggested it should be possible for me to either forecast where the wheel would go – what number would come up – or possibly use my mind to influence the number. I tried really hard to do both of those. I tried relaxing, saying maybe that’ll help. I would always start with a big pile of chips and lose them all. I began to believe in probability. I think that gave me a good intuitive feel – playing games and working in puzzles – for some tools that I ended up using later. 

What made you think that there was more to uncover with bank runs?  

Philip Dybvig: We weren’t looking specifically for deposit insurance when we started. What we were looking for more was understanding what banks do. We thought banks were a really important part of the economy, and we weren’t so satisfied with the existing models. At that time, it wasn’t quite true that game theory and economics were separate fields, but it was almost true. In industrial organisation, which has a lot of game models now, people tended to do more applied empirical things. If you write down a theoretical model, they’d say, “that seems intuitive. Why did you bother?” But it really helps to formalise things and make clear what assumptions you’re making when you’re doing things. Doug (Diamond) had a lot of training in banking as an undergraduate. He knew a lot of banking institutions. Once we met – I think it was for a beer at a professional meeting after we had both graduated from Yale – he said “I think that there are a lot of opportunities for using game theory to model things that are going on in banking.” And we started working on some different things and some different ideas. 

You’ve said that you don’t like to work on the hot topics. How do you come across things that people aren’t already thinking about? 

Philip Dybvig: I don’t work that hard not to. When I pick problems, I try to pick whatever is interesting to me, and there’s so many different interesting things in the world. I probably do steer away from something where there’s so many papers at a particular point in time. Part of that is just because it’s a pain, because you have all these people who think that the only important thing in this area is what they’re doing. I don’t like getting into those fights. The other thing, which I hadn’t really thought about early in my career, is that you’re not going to open up a whole new area working on the same problem a lot of other people have been working on.  

My advice to students is to work on problems you care about. There can be different reasons that you care about it. It could be that you care about the problem because it’s something that you think is really important for society. It could be that you care about it because you’ve seen some papers on this and they make you angry, because you think they got it all wrong. A lot of times really good work comes from saying “I don’t believe that resolved all. I think they’ve got it backwards”, then trying to formulate that and analyse the question “did they really get it backwards? Is my intuition correct?”. Then doing whatever empirical work or theoretical analysis is needed to answer those questions. I think that’s often very interesting.  

There can be a lot of different reasons why you care, but it should be something you care about. If you don’t care about it, you may as well be an investment manager. Even if you don’t like that work, it pays better. You probably have a happier life. But if you’re really curious about some things that are of interest to other people, then that curiosity can map into something that’s really useful, and being a researcher can be a good fit. 

How do you cope with failure? 

Philip Dybvig: Part of doing research is that not everything works. But after a little while, you kind of understand that. It would be easy to get frustrated. It’s worse if you’re really career oriented, if you’re spending all your time saying “how am I going to get the next promotion” or “how am I going to get tenure?”.  

I was young when I got started, and I was just lucky I was getting paid to do fun stuff for a few years. I think that gave me an advantage. If you work on something for three weeks and in the end you don’t have very much to show for it, you still learn something. The process to get to the final paper includes that. The thing that you do next – now that you understand what doesn’t work – is informed by that. You’d like to say ”next time, I’m not going to do three weeks finding out some things don’t work and I’m going to go straight to the things that do work.” But the only reason you try the things that do work, is because you’ve gone through some things that didn’t work.  

It does take a certain personality type. When I talk to students who are going into industry, I tell them that there are personality types that have nothing to do with intelligence or training, that are really important for what kind of job you select. The two that I focus on are how much you want to be around people. Some people say “I love people. I like to hang with my friends after work, but I’d rather just have quiet time and a cubicle, where I’m working by myself most of the time at my day job”. Other people will say “working in a cubicle all day, I’d go crazy. I can’t do that. I can do it for two years to get to the point where I can do the other job that I really want, but that’s not going to be for me”. Those two different personality types have nothing to do with intelligence or training.  

The other thing is how impatient people are. There’s some people who just need immediate feedback all the time. They want to know how they’re doing. Other people, who don’t care so much about immediate feedback, can work on something for months, no big deal. But they want to check and double check everything. They want to sleep on it. The extreme version is you can have something that you can do for two months and abandon it if it’s not working. The research is more like that. Being a trader is more like the immediacy. A trader would like to have a program where you do an Indianapolis 500 race at double the real speed. That kind of immediate feedback is what they thrive on.  

I think that if you’re a personality type who’s patient and you really like doing the work – you’re curious about it and maybe the process is just as important for your satisfaction as the result is – that’s the right personality type. 

Do you ever feel pressure knowing so many people have read, cited or built upon your work? 

Philip Dybvig: I’m pretty good at not feeling pressure, especially about my research. I think of it as free advertising. It’s like royalties. I mean, people keep citing the paper, I get attention, and I haven’t done anything on that since the eighties. I’ve worked on a lot of other things. 

But in terms of, did I expect it? I think Doug may have had an idea that it would be a really popular paper, but I didn’t really expect it. I kind of assume things aren’t there until they happen. 

Why do you think it’s important for students and researchers to approach and explain complicated subjects? 

Philip Dybvig: The goal is to find what you can learn about the complicated subject using simple arguments. One of the things we accomplished by working so hard, is to make the paper simple. Because the paper is simple, it’s relatively easy for students to read it. It’s also a paper that many people have extended. Because we made the model so simple, people can add different things to it and they can still solve it. I think that’s one of the reasons for its success. 

For students who are trying to approach complicated subjects, what advice do you have for them? 

Philip Dybvig: Most things are not so complicated if you look at it the correct way. I often tell my students that math is either impossible or easy. If you know it, it’s easy. If you don’t know it, it’s impossible. There are some things that you can figure out on the fly that end up kind of in between. But the goal is to look at something that’s complicated and form a simple understanding about it, and then investigate how robust that is. 

Was there a person who influenced you? 

Philip Dybvig: I’m more old school and I work on a lot of different things. And that was true of my mentors, that there was a feeling of being broad. If you look at my different papers, they are on very different topics. I worked on banking, and I haven’t ever decided I wouldn’t work on banking anymore, but I haven’t had anything I thought was that important to say yet. For me, I skipped from topic to topic. I’m working now on a paper on managing money for foundations and preservation of capital. I have worked on decision making and hierarchies. I have worked on how to design contracts for traders. I’ve had papers on optimal warranties. In my Nobel lecture I’ll talk about some very early papers on labor economics. I like working on a lot of different things, and I think that you learn something from working on one type of problem that’s useful for others. 

How do you maintain your curiosity? 

Philip Dybvig: The way I stay curious, is just to try to stay above the fray. There are people trying to cut you down sometimes and you just try to ignore them and keep going. I think it probably helps that I’ve always been immature. Nobody ever accused me of being mature for my age. I think it’s just staying open to it, and not getting into a grind or too much of a routine. 

Can you tell us about the object that you are donating to the Nobel Prize Museum? 

Philip Dybvig: One of the sources of my intellectual ability is that when I was growing up, I was passionate about games and puzzles and music. I couldn’t find anything that survived having to do with games or puzzles, but I brought in a piece of music that I liked. I think passion is important. If somebody says “I want to be a Nobel Prize winner, I should do games and puzzles and music,” I think that misses the point. You need something that you’re passionate about, that will keep you focused and get you using your brain and help you to develop some discipline and habits of persistence to be able to solve problems or do things. Music is one thing that’s always done that for me. It’s also been grounding for me. It’s helped me to get back to a kind of a stable place, even if my emotions are going crazy. 

Do you think it’s important to have hobbies outside of your research? 

Philip Dybvig: I’m not sure that it’s important to have hobbies outside your research. All I know is that that worked for me and was useful for me. I worry a little bit that kids tend to be too structured these days. They have a karate class and they have the ballet, then they have a music class and it’s like they don’t have time to be creative. I think for creativity, you need play time which is unstructured. I think that was good for me. I had a chemistry set that just about caught the house on fire a couple times. That was probably more important than going through a book with experiment, one after another. A lot of creativity is putting together things in a new way. Just being exposed to a lot of different things, gives you more building blocks to put together. 

What skills are important for students or researchers to develop? 

Philip Dybvig: I think you want to work hard to find out what it is that you like doing and what you care about. It doesn’t have to be for any noble or big reason, but it should be something that means something to you. If you have a job that you don’t care about, it’s going to be miserable. 

Research is hard work if you don’t care about it. Working on it three hours a week is going to be hard work. If you care about it, it’s fun or at least interesting or satisfying to work on it 60 hours a week. Try to structure your life so that you’re doing things that mean something to you. It might be something that’s also great for the world, but it doesn’t have to be. It just has to be something that means something to you. 

Watch the interview