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What Shakespeare can teach us about money

A First Folio edition of William Shakespeares' plays is pictured at Sotheby's auction house in London.

So, what do Shakespeare and money have in common? The course "Shakespeare and Financial Markets," was introduced at Duke University to explore that very connection. Classic Shakespeare plays like "Hamlet" and "Julius Caesar" are used to teach students about what drives financial behavior. The class is taught by visiting professor John Forlines III, who is also an investment banker and corporate securities manager.

"It's clear when you delve into Shakespeare -- and of course I've spent a large time looking at Shakespeare and also looking being in the financial markets -- human behavior is behind so much of what we do in our lives and also most important in our decision making," says Forlines.  "Shakespeare held up a mirror to humans and showed us how we behave, probably one of the first artists to really capture that. When you look at some of the mistakes -- both policy wise and also by investors -- in the last 20 or so years, you see a lot of those behaviors. Drawing out those connections is part of what made the course I think for me and also for the students a lot of fun this year."

To help with money management, Forlines uses a quote from "Julius Caesar" by the character of Brutus.

From "Julius Caesar" Act 4, scene 3, 218–224
There is a tide in the affairs of men.
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures.

Forlines says the quote means you should "go with the flow and in the case of personal investments, spend your time finding a very good adviser and then watch other TV shows besides ones that focus particularly on your investments."

About the author

Veteran journalist Tony Cox has joined American Public Media as guest host of Marketplace Money.
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Jessie Livermore, ~ "In a bull market your game is to buy and hold until you believe that the bull market is near its end." Is probably taken from Shakespeare’s, “There's a tide in the affairs of men, which, taken at the flood, leads on to fortune."

There's a tide in the markets of men, that has power and force, that ebbs and flows in time. To be a successful investor, one must hold positions with the flow.

Inaction, only allows the market to pass its trough and begin to crest without you. If the timing is missed, you’ll find yourself poor.

Shakespeare’s Merchant of Venice is used on an Open Yale course on youtube. The heart of the story is commentary about economics, and not really about love.

.. "I'm not worried about the boats because every boat is on a different ocean and so I'm not worried. They are on a different ocean and they're sailing at different times. I’m not worried about my boats” .. It’s business first, love second; and secondly, Shakespeare understands diversification.

"If you shoot an arrow and you lose it, shoot an arrow again the same way and then follow the second arrow more closely and you'll figure out where the first arrow goes." So he’s on a business venture, with a business plan.

“ripe wants of my friend".. because of his impatience he’s willing to pay a higher rate of interest.

Shylock~ That’s the badge of our tribe. We’re patient and so that’s why I'm willing to lend you the money.

Bible~ Jacob was asked to, .. perform a service in the field, using his fields .. although Jacob had lent some of his sheep and his fields to the person who wanted them, he got back vastly more than he lent at the beginning. .. Jacob got so much more because he took a risk. Who would have known how many lambs were going to be born. And so you don’t really charge interest, you're an investor.

Well, 0. “I'll lend you the money and take no doit of usance for my monies," not a single interest for my money. But they have to negotiate something else, something besides the rate of interest. They have to negotiate the collateral.

Shakespeare has understood the impatience theory of interest. You’ve got an impatient borrower and a patient lender, and it's the tradeoff between patience and impatience which is going to decide what the rate of interest is.

How do we know these people are going to keep their promises?

Well, it’s because he’s putting up collateral. This first contract is the loan of Shylock.

Shakespeare talks about risk and return and how people who have a higher risk are going to expect a higher return. Calamity appears. “My ships have all miscarried.” Shylock wants his collateral.

This Jewish girl Jessica has become a Christian so now she's going to be able to eat pork so it's going to increase the demand for pork and therefore raise the price of hogs. The play is full of economics. It’s all about teaching economics.

Shylock thinks the guy is a complete fool. He doesn't understand interest. He doesn’t understand the whole point of a lending contract, and getting interest. I stand for keeping promises and the law is supposed to enforce promises. I stand for law is what Shylock says.

The Judge comes in saying who’s the borrower, and who's the lender?

What she says is that what was wrong is, the contract wasn't right. It wasn't the interest rate that was wrong. It wasn't the amount you owe that was wrong. It was the collateral that was wrong. That’s going to turn out to be, the leverage was wrong.

So the whole play is just about contracts and breaking contracts. And so at first it’s about what the rate of interest should be, then it switches to, should contracts always be enforced, and yes they should be enforced, but the enforcement should be the taking of collateral and sometimes the amount of collateral put up is wrong.

econ-251: Financial Theory : http://youtu.be/FJW9eGGH_tg?t=2m22s

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