Thursday, August 30, 2012

How Raghuram Rajan became an economist?

In this piece Raghuram Rajan recalls the events which made him become an economist:

As a young MBA student, Raghuram Rajan spent a summer interning at a prestigious foreign bank. “This was before quotes were online, and there was something called ‘cholesterol pricing,’” he said. “A colleague would offer to take a call from your client, who wanted a foreign exchange rate, and the colleague would offer ridiculous pricing,” Rajan recalled. “If the client didn’t immediately have a heart attack, that was the rate he got. But if he objected, the colleague would say, ‘Let me have your banker get back to you. He might be able to get you a better rate.’ It wasn’t the norm, but there was a sense that this was acceptable.”
Not to Rajan. “Who would I be making money for, and who would I be squeezing?” he recalls thinking. “Growing up in India, I had seen poverty all around me. I had read about John Maynard Keynes and thought, wow, here’s a guy who managed to have an enormous influence on the world. Economics must be very important.”
That summer, Rajan also worked on a project about options. He ran across Robert Merton’s paper on rational option pricing, and something clicked that set him on his own intellectual path. “It all came together. You didn’t have these touchy-feely ways of describing human behavior; there were neat arbitrage ways of pricing things. It just seemed so clever and sophisticated,” he said. “And I could use the math skills that I fancied I had, so I decided to get my PhD.”
It was an amazing decision really. But then Rajan is being modest. Looking at his CV, he was an early achiever (gold medalist at both IIT and IIM) and was destined to make it big.

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