Philip Dybvig


Philip H. Dybvig

This biography is intended to talk about how my early life contributed to my development as a scholar. This is necessarily speculative, since I have no evidence of what would have happened if my early life had been different. However, my impression is that my development as a scholar built on using my brain on various passions when I was young. I have always been curious about many things, and for me the breadth of interests provided a lot of ideas that could be combined in doing research. I read most of the mystery and science fiction books and many biographies in the local public library, and I read a lot of math and science outside the relatively small amount required for school. I did a lot of experiments with my chemistry set, which unlike chemistry sets today that have been regulated down to a few experiments with dyes, had a lot of interesting chemicals including a lot of chemicals I bought that were not in the original set. I also spent a lot of time solving puzzles. I was also interested in astronomy, and I participated in a regional astronomy club where I attended meetings and built my own telescope, grinding and polishing the mirror myself. In this essay, I will focus on two other interests that seemed to have a profound impact on my development, playing music and playing games.

My great grandparents on my father’s side came to the US in the late 1800s, and my grandfather and grandmother were born soon afterwards, in 1890 and 1897. The family settled in South Dakota, colder than Stord Island, Norway, where my father’s father’s father came from, although it is much further south. They thought the cold clear air was healthy, but actually many of them died of pneumonia, tuberculosis, smallpox, and polio. Under the Homestead Act, land could be obtained by new immigrants who were willing to help the country to expand westward by building and inhabiting houses on the empty lands. My grandfather went to law school in his 40s and was a successful patent lawyer in Dayton, Ohio. On my mom’s side, the family has been in the US for longer, and records do not seem so good. She said our ancestry on her side is Scottish, Irish, and some French, but she also told my father’s mother she is part Danish to curry favor (not knowing about the traditional rivalry between Norway and Denmark). She was never one to let cold facts get in the way of a good story, so I am not very certain about her account about my ancestry on her side. Her father was a professor at a theological seminar in Dayton and also worked a small farm.

I was born on May 22, 1955, in Gainesville, Florida. My father was finishing an undergraduate degree in engineering, and my mom, who had already finished her undergraduate degree in music education, was working as a telephone operator. When I was six months old, we moved to Alexandria, Virginia, near Washington, D.C., where my father worked in the Patent Office days while going to law school nights. When I was six years old, we moved to Kettering, Ohio, a suburb of Dayton, and my father joined my grandfather’s patent law firm with my uncle. I lived in Kettering through high school. Around the time I went to college, my father hoped I would join the family law firm. Patent law is interesting because you get to learn enough about new technologies to describe them and evaluate claims of priority of patents. However, I knew my father spent a lot of time writing in his job, and that ruled it out for me. I didn’t realize then that almost all professionals spend a lot of time writing, and indeed I spend a lot of time writing in my work. Fortunately, I have learned to enjoy writing a lot more than when I was in high school.

My introduction to music began at the age of 4, when my mom started giving me piano lessons. I started with a regular teacher, Mrs. Berges, at the age of six, and I studied with her through high school. She gave me a firm foundation in classical music. I also worked on my own at playing popular music. I taught myself to “play by ear,” which is the ability to play the musical notes of a song you hear (or hear virtually in your head). I also worked on improvisation, which is making up music on the fly. Occasionally, I started to get “perfect pitch,” the ability to identify notes that I hear without any reference to other notes, but I had an idiosyncratic theory that perfect pitch would interfere with my ability to transpose songs into different keys. To keep from getting perfect pitch, I would pick up an instrument in my house, put it out of tune, and play it for a while. I am very good at transposing, but this is not a test of my somewhat dubious theory, since I do not know how good my transposing would have been if I had perfect pitch.

By the time I was a senior in high school, I was playing piano five or six hours a day, at school with the orchestra and chorus and during study hall, and at home an additional two or three hours. Over time, my interest turned more from classical music towards popular music, and Mrs. Berges was annoyed (but patient) if I forgot a section in a classical piece and improvised a substitute. I played piano very little for about 10 years during my PhD studies and the subsequent start of my academic career. When I started up again, it was initially painful because my skill level was so much lower than before, but within about six months I was happy again with my playing. I have been working a little playing piano on and off since then. My biggest gig was performing with the Marsha Evans Coalition, billed as “jazz, blues, and Motown.” I was working with them for nine months in the 1990s, four nights a week, 9 PM until 1 AM. When the job ended, I was disappointed but also relieved because it was really too much work on top of my full-time job at the university. These days, I still try to get out to sit in with other musicians about once a week. Playing music keeps me grounded, and my initial training helped me a lot with discipline. Also, the patterns in music helped me to develop both intuition and analytical skills for mathematics. I was happy to have several opportunities to play music with other people during Nobel Week.

My exposure to playing games started when I was very young. I don’t think it was literally true that I knew how to play bridge before I could talk, but that is the right idea, and the first thing we would do at family reunions was to set up bridge tables. In the middle of the year when I was in the third grade, my family moved within Kettering to a new house about 2/3 mile (1 km) away from where my cousin Kip (Kevin F. Dybvig) lived. Kip was my best friend growing up, and he was one of my official guests during Nobel Week. Kip and I played games nonstop. Kip got a PhD in biophysics at the University of Rochester and ended up doing research in microbiology at the top medical school at the University of Alabama, Birmingham, until his retirement a couple of years ago. He says that his success in research was due to playing games as a kid, and I suspect he is correct. In high school, he was more serious about chess than I was – for some reason chess didn’t capture my imagination when I was young – and I was more serious about bridge. When I was in high school, I thought seriously about becoming a bridge professional. I thought about the decision as “bridge versus the rest of my life.” I decided that focusing on bridge would be too narrow and I chose the rest of my life. I didn’t play many sports, but there were some athletic games I played. I played tennis a lot; I liked doubles because of the strategic aspects. I also shot baskets by myself after school for a half hour or forty-five minutes each day. My most serious sport was sailboat racing, and I did a lot of intercollegiate sailing in college. It combined nicely some athletics, physics and other science, and strategic thinking. For example, when sailing on a small lake, you think about how the wind direction and speed will be affected by hills around the lake, and how to take advantage of the differences in wind direction and speed, all the while requiring coordination, strength, and physical understanding (of the wind direction and laminar flow around the sail) to control the boat and make it move quickly. Like in other games, the rules affect strategic competition. In particular, the right-of-way rules in sailing are complex and have rich implications for decision-making.

Playing games gave me a good intuitive understanding of and faith in probabilities. I read a book on extra-sensory perception, which claimed it is possible to predict and influence the outcome of random draws. I sat down with a toy roulette wheel (playing a game against “the house”) and first tried to forecast the outcome of the wheel, and then tried to influence the outcome of the wheel. In either case, when I bet on my predicted outcome or the outcome I tried to induce, my pile of chips slowly dwindled down to zero again and again (due to the house advantage of having 0 and 00 on the wheel). This made it plausible to me when I heard that it is hard to beat the stock market consistently, a notion of efficient markets pioneered by Cowles (1933). I also used ideas of strategic decision-making and conditional probabilities to think about my daily life. For example, sometimes my father came to pick me up after middle school, and he was invariably late. If I needed to use the restroom, I could go to use the restroom, but it risked my father’s fury if he arrived and I was not waiting outside. As a result, I would think about the conditional probability that he would arrive in the next two minutes given that he was already 45 minutes late. Like inference and decision-making in bridge and other games, this was good training for thinking about strategic issues in economic models.

An even earlier example of my strategic thinking regarded walking to and from elementary school, a walk of about a mile and a third (about two kilometers). The roads were not arranged in squares, and it was not obvious what would be the best route to school. I noticed that wandering along (optimizing locally!), I took a different route to school than going home. I thought about whether this was because the optimal route was different, or just because I put different emphasis on what I was experiencing rather than what was further on. I discovered that the answer was a combination of both. When I was walking along a busy road I would have to cross sooner or later, it made sense to cross when I reached the first intersection with light traffic. As a result, it made sense to cross the road earlier on average than the middle of the stretch, whichever direction I was going. This meant that the typical route was optimally different going to school than returning home. Thinking about this was not intended to serve any long-term goal; rather it was pretty automatic given my playing games all the time and was just to satisfy my curiosity (and prevent boredom) in the moment.

I was fortunate to grow up in Kettering, which had great public schools, especially for music, but there were also great teachers in other subjects. I remember some particular favorites: Mr. Detrick (orchestra), Mrs. Elicker (French), Mr. McKelvey (math and health), Mr. Neff (math), Mr. Tackett (chemistry), Mr. Tarzinski (english), and Mrs. Williams (fifth grade). I was also fortunate to grow up in a reasonably stable family, not without warts, in an upper-middle-class neighborhood, which gave me the resources and freedom to thrive. When I was in school, there was not so much homework, which left me a lot of time to pursue outside interests and develop creativity. Good classes are important, but often you can get a deeper understanding if you teach yourself.

I suspect it was important that I had intellectual activities that were fun. When I was in the fifth grade, I made some primitive weather instruments to measure wind speed, wind direction, and some other basic weather variables. I brought them to school, and the teacher said in front of the class that I would get extra credit for making them. Another student in the class said it wasn’t fair to get extra credit for something fun. I thought he missed the whole point that learning is supposed to be fun. It is the job of students to find what is fun in each subject, and to overcome whatever the teacher or textbook (or the student’s bad attitude) is doing to make the subject uninteresting. Fortunately, I was always interested in many things. Right before she died, my mom remarked to me that when I was young, I never once complained “Mom, I’m bored. I don’t know what to do.” I always had so many interesting things to learn about and not enough time.

In the eighth grade, I did let a teacher ruin my appreciation of history, something I still regret today. When I went to the first day of history class, my teacher, Mrs. Bleck, yelled at me “You have to get your hair out of your eyes!” I was a good student, well-behaved, and a little timid, and at first I did not imagine that she could be talking to me. She yelled again, “You! I’m talking to you!” I realized she was talking to me. My bangs were touching my eyebrows, perhaps a technical violation that of the dress code at that time. I brushed my bangs aside so they no longer touched my eyebrows, but she was not satisfied, and she bellowed “That’s not good enough. You are going to have to BUY a comb. I can tell you are a troublemaker. Sit here in the front where I can keep an eye on you.” I was devastated, and to this date I like knowing history, but I have trouble studying it, and I have trouble remembering names and dates. It’s a shame I was not tougher, and I broke my (subsequent) rule that I should not let a bad teacher spoil a subject for me. Perhaps I did not know how good I had it; at that age a “bad boy” was probably the hero of a lot of the girls in the class. The episode is also a good reminder that teachers should be nice to students, and that unkind words could have a long-term impact. On a related point, teachers often play favorites to students and are very nice to some students or nasty to others. However, this is not being a good teacher. It is fun to interact with a good all-around student who is very likeable. However, you are more likely to make a difference in the life of a student who is not so likeable and is performing below capacity. This is someone who needs a friend.

When I finished high school, I went to Indiana University for my undergraduate training. Indiana had the top-rated music school in the country and a beautiful campus. And it was close enough to return home comfortably for vacations but far enough away to deter my parents from dropping in unannounced. I planned to major in math and music, but when I arrived on campus, I found out the music school was “too good” and did not accept double majors. “If you have any interest in anything else, do it; making a living with music is too difficult.” I did take music lessons as a nonmajor. I also played a lot of music as a nonmajor, including accompanying a violin recital and making pocket money accompanying opera singers. There were great musical performances – Bill Evans, Vladimir Horowitz, and the student opera were all amazing. Given that a music double major was unavailable, I started out by majoring in math, but I soon decided I preferred to have a major that applies math, either physics or economics. (Music was ruled out partially because I had some stage fright, but in fact I have gotten over that over time and it is a shame it entered my decision.) I went to the physics department, and asked whether I could get into a top PhD program in physics if I majored in math and economics. The advisor laughed and said that seriously, there is a body of knowledge I would be missing. Then I went to the economics department and asked whether I could get into a top PhD program in economics if I majored in math and physics. The advisor replied that would be great, that undergraduate and graduate economics were not so similar, and that physics would teach the problem-solving approach without the emotional burden of economic questions. At that time, I did not know about the concept of dominant strategy, but I did understand the value of putting off a decision, and I chose to major in math and physics.

At Indiana, I competed in sailing against other schools. Sailing is a sport that was a student activity, not a varsity sport, at Indiana, but we took it seriously. Except in the coldest months of the year, we drove to other universities to compete every week. In the fall of my third year at Indiana, I grew weary of competitive sailing and decided it was time to think about graduating from Indiana and moving on. I had a lot of advanced placement credits when I came to Indiana and I had a lot of course credits, so it was relatively easy to arrange to graduate at the end of my third year. But what to do next? It was time to decide whether to continue in physics or economics. I knew more about physics, and I was especially interested in elementary particle physics. Unfortunately, this was a crowded area, and it was my impression that most PhDs in physics since I was born were also in this area. I heard a story about a new experimental result in this area reported in the Physical Review Letters, followed within 6 months by publication of three possible theoretical explanations. At the end of the six months, the people who published the experimental result published a retraction, saying that their result remained when they removed the sample from the particle beam, indicating a problem with the equipment. I imagined my role as providing a fourth theoretical explanation for the experimental result, which didn’t seem like much of a contribution to society. Therefore, I decided to apply to graduate school in economics.

When I decided to focus on economics, I got acquainted with Michael Magill, an economics professor, and I took his course on mathematical economics. I was missing many prerequisites for the course, including the first-year economics PhD courses and the first semester of his sequence, but the first problem set used Hamiltonian dynamics to solve a physics problem I understood because of my training in physics, so I figured (correctly) that all would be okay. Michael helped me to choose graduate schools where I should apply, and I also started attending a seminar series he ran. I was admitted with fellowship money to Rochester and Penn, and I met Lionel MacKenzie from Rochester and Steve Ross from Penn when they came to speak in Michael Magill’s seminar series. I met with Steve after his seminar on April 14, the day before I had to choose which graduate school to accept. I asked Steve why I should come to Penn over Rochester, and at the end of the conversation he agreed to be my advisor. He was the best advisor ever, and a year after I went to Penn he moved to Yale. He arranged for me to come with him to Yale, because he had promised to be my advisor while I was still an undergraduate.

I want to digress and talk about why a student going to a research seminar should always ask a question. This has many advantages: it will improve your understanding, it will keep you engaged, it will make you look good, and it is good practice speaking about research. I think a lot of students avoid asking questions because they are worried they will look bad, but they don’t understand. If a student asks questions, the professors will think the student is engaged and will assume the student is smart. If the question is not so sophisticated, no problem, have you listened to the professors’ questions? And occasionally the student will ask a smart question (if only by accident) and then the student looks very smart. (It is risky for a student to ask a lot of questions in one seminar, even if they are good questions, because some faculty will have a misplaced sense of hierarchy and get upset. However, asking one question per seminar should be safe.) When Steve Ross visited Indiana, I had a habit of asking one question per seminar, a smart strategy but for a little silly reason: it helped me stay awake during the seminar. (This reason was not completely frivolous, because being more engaged is a good reason to ask a question.) I looked at Steve’s paper, the working paper version of his incentive-signaling paper Ross (1977). The paper has a model in which good firms take on a lot of debt to show how tough they are, which signals they are good firms. I did not have a good question, and reading some of Steve’s papers he referenced didn’t help either. So, I asked a friend who was an accounting major what it means when a firm has a high debt-equity ratio. She said that maybe the firm has cash flow problems, and will have trouble making debt payments, and will fight to stay in business. I figured it would be safe to ask how the model differs from the standard argument, and in the seminar I asked Steve how he knows his firms are taking on more debt to show how good they are, and that they are not in trouble and borrowing a lot to try to cover costs and stay in business. Well, this is a much better question than I had a right to ask (only by accident), and it is why we think of that model as a parable and don’t take it too literally. That is probably at least part of why Steve agreed to be advisor to the awkward skinny longhaired kid.

I had mostly great first-year courses at Penn, especially from Dave Cass, Bob Pollak, and Karl Shell. When I was a student at Yale, I had more personal interactions with faculty members, including my co-author Gerry Jaynes, Bill Brainard, Don Brown, Al Klevorick, Sharon Oster, and of course my advisor, Steve Ross. Besides my advisor, Bill Brainard probably had the largest influence. I think he didn’t like writing papers and fighting through the review process, but he was the source of the main idea of a large fraction of the papers produced in the very successful Yale Economics Department. He and Steve Ross were old-school in the sense that they worked on research on a wide variety of topics, something that seems rare in my vintage and in younger economists. I followed these advisors in adopting a wide breadth of research. Working on many topics suits my restlessness, a sort of intellectual short attention span. My co-author Doug Diamond has focused on banking in his whole career, but I have only written three banking papers: the Prize paper (Diamond and Dybvig (1983)) and two policy-oriented pieces (Diamond and Dybvig (1986) and Dybvig (1993)). My remaining papers cover a lot of topics.

My advisor, Steve Ross, was a great teacher, and he placed many PhD students at top universities. He seemed to have a second sense about just how much help a student needed. While I was taking his PhD-level finance course, I stopped by his office. He said some people don’t know how to take a hint. He threw out good research ideas in class, but nobody ever took him up on them. He pointed to one idea from the most recent class, an open question about whether the market portfolio is efficient, which is (in principle) a testable restriction that can help us to distinguish alternative theories. He pointed out that this is a finite-dimensional problem that should be tractable, and the answer would be interesting either way it came out. This became the paper published as Dybvig and Ross (1982). The experience of writing with Steve taught me what I needed to jumpstart my research career. After that, Steve gave me help in my research, but not too much. The amount and style of help Steve gave seemed to vary a lot across students. He just knew what each of us needed.

My PhD thesis at Yale included papers (published as Dybvig (1982,1983)) that looked at the question of recovering preferences from behavior. The results in these papers can be interpreted as versions of the uniqueness results of revealed preference theory specialized to risk preferences. In some form, these results can be used in practice for eliciting a client’s risk preferences from stated choices. By this time, most of Steve’s work was in finance and he was viewed as a financial economist. I asked him whether my thesis was in finance, and he responded, “Finance is the set of things people interested in finance study,” which I took to mean “No, but it’s okay.” I liked finance a lot at that point, but I suspected it was only because Steve was so charming and made everything magical. After a year and a half in the Economics Department at Princeton, I figured out that I really do like finance, and now most of my work is in finance.

In graduate school, I wrote one finance paper, three papers in economic theory, two papers in labor economics, and one paper in industrial organization. Later, most of my papers have been in finance: endowment management, asset-liability management, risk management, fixed-income, option pricing, capital structure, asset pricing, performance measurement, lifetime consumption and investment, incentives for managers, decisions by corporate boards, banking (including the Prize paper with Doug Diamond), risk management, performance measurement, and liquidity. I have also written papers on diverse topics in other areas, industrial organization, law and finance, incentives in hierarchies, economic theory, and the central bank decision problem. My general rule is to work on what is most interesting to me at the time, since it is hard work to spend three hours on something I don’t care about but not a challenge to spend 60 hours on something I am interested in. There are many reasons for being interested in a problem, for example, curiosity, large benefit to society, or dissatisfaction with what other people are saying. Dissatisfaction with what other people are saying does not sound very nice or important, but it is honorable because sorting out confusions in the literature can often make a big contribution. My best contributions have probably come from curiosity. I think that curiosity points us naturally at where understanding is most lacking, and this is more likely to benefit society than the direct approach of setting out to benefit society from the outset. Another thing that is important is not to be too rigid. Although there are types of experiments that require a lot of advanced planning, it is better to be flexible and understand we have an option at every point in time to switch to more promising project, in case we learn that the current project is less interesting than we expected. One exception to working on what is most interesting is that we need to finish good papers that are nearly done and push them through the publication process. It is our job to communicate good research, and without communication it is just a personal diversion that does not benefit anyone else.

To summarize, I think that passions about a number of activities in my early life primed my brain for research and kept my curiosity alive. I have focused on music and games as two activities that helped my development, but I think it was important to have passions that used my brain, and perhaps the particular passions did not matter so much. I would suggest that parents should help kids to find passions that keep them thinking, but I would also warn against dictating what those passions should be.


Cowles, Alfred, 1933, “Can Stock Market Forecasters Forecast?” Econometrica 1, 309–325.

Diamond, Douglas W., and Philip H. Dybvig, 1983, “Bank Runs, Deposit Insurance, and Liquidity,” Journal of Political Economy 91, 401–19. Reprinted in Federal Reserve Bank of Minneapolis Quarterly Review Winter 2000, 14– 23,

Diamond, Douglas W., and Philip H. Dybvig, 1986, “Banking Theory, Deposit Insurance, and Bank Regulation,” Journal of Business 59, 55–68.

Dybvig, Philip H., 1982, “Recovering Preferences from Preferences over Nominal Gambles,” Journal of Economic Theory 28, 354–360.

Dybvig, Philip H., 1983, “Recovering Additive Utility Functions,” International Economic Review 24, 379–396.

Dybvig, Philip H., 1993, “Remarks on Banking and Deposit Insurance,” Review of the Federal Reserve Bank of Saint Louis 75:1, 21–24.

Dybvig, Philip H. and Stephen A. Ross, 1982, “Portfolio Efficient Sets,” Econometrica 50, 1525–1546.

Ross, Stephen A., 1977, “The Determination of Financial Structure: The Incentive-Signalling Approach,” Bell Journal of Economics 8, 23–40.

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