May 29, 2015 (Beijing, China)- Guanghua School of Management at Peking University rung in its special 30th Anniversary Celebrations with the Thought Leader Series featuring Nobel Laureate, Myron S. Scholes. Myron S. Scholes is a financial economist who was awarded the Nobel Memorial Prize in Economic Sciences in 1997. He is well-known for the Black-Scholes model, a method to determine the value of derivatives.

    In his Thought Leader Address, Dr. Scholes explained that the internet has transformed finance from being "a snapshot of transactions" to "a sequence in a movie" and that this increased fluidity also increases complexity and heightens implications of the model, as each point in the sequence of financial transaction can inform strategic financial decisions.

    Dr. Scholes expressed concern that while technological development will lead to increased efficiency, the role of bank institutions and people will need to change:

“What J.P. Morgan is doing today is not what it will do in the future, [because] technology makes it [transactions] more efficient,” said Dr. Scholes.

What these future actions will be is not a mystery; in fact Dr. Scholes outlined that the future of the financial system will have 6 functions. These 6 functions are (1) Transacting and Enhancing Trade, (2) Financing Large Scale Projects, (3) Transfer of Resources, (4) Risk Sharing and Risk Reduction, (5) Pricing and Valuation Signals and (6) Reduction of Market Frictions and Deadweight Costs.

To further explore these changes, Dr. Scholes explained three examples of internet-finance advancement in recent years,namely  big data, bitcoin and mobile payment, and the important role of individuals in integrating these developments.

In fact, a common theme in Guanghua Thought Leader events is to emphasize how the new generation of business professionals can be meaningful contributors to the next generation of business. Dr. Scholes continued this tradition by emphasized that even with improved technology, the role and agency of the individual remains crucial. In fact, the need for careful analysis, reflectivity on error and responsibile actions is all the more importance in internet finance.

Insights from Dr. Myron Scholes

Big Data: Better Analysis of Data

While the information big data provides is overwhelming in quantity and possibility, the ability to access and analyze this data remains key to its utility. Dr. Scholes in fact noted that big data by itself is useless and that the analysis and conclusions from the data are what informs decisions to increase firm efficiency.  Moreover, Dr. Scholes feels that the benefits big data provides to the consumer and merchant currently outweighs privacy concerns.

Nevertheless, Dr. Scholes explicated three steps for drawing conclusions and using big data in a sustainable way in everyday firm activity:

1: Induct before you deduct:

It is important to test the deductions made from data so to ensure completeness and thoroughness of the data set.

2: Beware that Correlation structures are inconsistent:

The trope of "correlation does not causation" remains true with big data. Therefore, it is important to explore why certain elements are associating and to critique any errors of the data collection model.

3: All models will be reverse engineered over time:

The constant change in big data requires consistent evolution on the side of the data collection as well.

Bitcoin & Transparency

Bitcoin’s independence from government or bank control makes it a "game changer" from Dr. Scholes perspective.  In fact, Dr. Scholes expressed confidence that this crypto-currency technology is a move from a vertical to a horizontal system and that its developments that will reduce costs and spur further innovation.

Innovation 1: A Public Ledger. Bitcoin's global ledger can be viewed by the public and each user has a private key.

Innovation 2: Publically managed. An online community verifies transactions by solving complex mathematical problems.

Mobile Payments: A new horizon for efficiency

The fact that 90 per cent of the world still relies primarily on cash, coupled with low-to-zero cost margin for mobile payments, illustrates that there are huge opportunities in the mobile payments sector.

However, speed bumps to the efficiency still exist. One such hindrance is the nodes of transactions: every time person pays for an item via mobile payments, which uses their credit/debit card, this card must  relay that information to a node, like, a bank. Dr. Scholes says that if the node can be eliminated, efficiency will be greatly increased.