Tamir Druz: From Risking Check in Chess to Checking Risk in Energy Futures

A 1989 Westinghouse finalist studied how elite players choose moves, now he advises companies on how to think about the price of power

Tamir Druz

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His finalist year: 1989

His finalist project: Figuring out if creativity can predict chess expertise

What led to the project: Tamir Druz's mother and father grew up in the Soviet Union where "chess was pretty much a national pastime," he says. As immigrants to New York City they taught their son the game, and by his senior year at The Bronx High School of Science, Druz was the captain of the chess team.

The more he became involved in competitive chess, the more he began to wonder: "What made a great player great? What made one player better than the next?" He got to know many elite players, and his observations made him think that neither bookish intelligence nor the ability to memorize lots of information had much to do with anything.

So he decided to determine what did matter. He built various tests of people's abilities to think in different ways, and gave these tests to chess players of varying levels during breaks in competitions. He discovered that the best predictor of chess expertise was not whether people could necessarily think a certain play through 20 moves ahead, but rather how "flexible" they were in considering "a wider and broader array of possibilities." The stronger players possessed a type of creativity where "they were more open to looking at options that, on the surface, might not appear to be especially promising." Elite chess players would contemplate many moves and, rather than "dismissing most right away, they instead gave everything its due time in the spotlight."

He entered his results in the 1989 Westinghouse Science Talent Search and was named a finalist.

The effect on his career: Druz took the lesson of his Westinghouse project—that thinking broadly can give you an edge—to heart. He'd always been interested in finance and markets, and because he planned to enter that field as soon as possible, he wanted to use his college years to study something that could give him a broad perspective on how systems worked, rather than simply studying economics. So he went to The Cooper Union in New York City and earned a degree in chemical engineering in 1993, then to the Wharton School of the University of Pennsylvania for his MBA. In 1994 he joined the Manhattan office of Booz Allen Hamilton, the consulting company, in the energy and chemicals group.

What he's doing now: With all the changes in the energy industry through the past 15 years, Druz's career has taken him to several enterprises. He finally landed in the energy risk management group at Towers Perrin, a strategy and consulting company, after the boutique firm where he was working, Risk Capital Management, was acquired in 2006. Through all this, however, his work has focused on a similar question to his chess study: whether, in assessing energy prices, thinking about all the variables as broadly as possible can give one an edge.

The problem, he explains, is that even though experts can construct models for future energy prices that fit past data, these seldom actually do predict the future. "No matter how much work you put into it," he says, "the predictable component is overwhelmed by factors beyond the capabilities of the forecasting model." There is much "chaos and randomness." Although one can know that oil wells are capable of a certain level of productivity, it's quite hard to predict, for instance, if there will be a war in an oil-producing region 10 to 15 years from now, or three category 5 hurricanes in the Gulf of Mexico next year.

So "what you do is not try to predict the future necessarily, but try to predict certain aspects of what will happen—understanding what you're really predicting and what's left over, and taking that part that's left over and risk-managing it," Druz says. That way, "you're exposed to only that part where you feel like you have an edge and feel like you have a view." He advises companies from airlines to chemical firms on these matters, getting them to ask, "What part of the next 50 moves in the market am I predicting?"

Figuring out as many variables as possible and how to manage that risk is, like chess, complicated, but Druz credits his Westinghouse project with helping him learn to "construct my own tools to address what I specifically want answered."

Such innovation has helped him stand out in a crowded field, says Amar Saati, a colleague at Towers Perrin who first met Druz years ago when both worked for the now-dissolved PG&E National Energy Group in Bethesda, Md., trading natural gas, oil and other energy commodity futures and options (tools for managing risk or increasing profits). "Energy trading and risk management has come into its own over the past 10 years, and Tamir has been a leading practitioner over that period," Saati says, with many large firms using his state-of-the-art models. For instance, Druz has developed a risk optimization model for several leading wind power developers that helps them evaluate which project combinations and hedging strategies might yield the highest investment returns.

And Druz does still play chess on occasion. "I can't say I'm devoting as many hours to that as I used to," he says. "It's always going to be a real passion, but I guess maybe not as hot a passion as it once might have been."

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