Born in Huntsville, Alabama, Wales attended Randolph School and earned finance degrees from Auburn University and the University of Alabama. He worked as a financial options trader in Chicago during the 1990s before shifting his focus to the internet economy. While in graduate school, he was teaching at two universities, but left before completing a PhD to work in finance, later becoming chief research officer at Chicago Options Associates.
Jimmy Donal Wales was born in Huntsville, Alabama, on August 8, 1966. His father, Jimmy Don Wales, was a grocery store manager, while his mother, Doris Ann (née Dudley), and his grandmother, Erma, ran the House of Learning, a small private school in the tradition of the one-room schoolhouse, where Wales and his three siblings received their early education. As a child, Wales enjoyed reading. When he was three years old, his mother bought a World Book Encyclopedia from a door-to-door salesman. World Book sent out stickers for owners to paste on the pages to update the encyclopedia, and Wales used them on his copy, stating, "I joke that I started as a kid revising the encyclopedia by stickering the one my mother bought."
During an interview in 2005 with Brian Lamb, Wales described his childhood private school as a "Montessori-influenced philosophy of education", where he "spent lots of hours poring over the Britannica and World Book Encyclopedias". There were only four other children in Wales' grade, so the school combined the first- through fourth-grade students, and the fifth- through eighth-grade students. As an adult, Wales was sharply critical of the government's treatment of the school, citing the "constant interference and bureaucracy and very sort of snobby inspectors from the state" as a formative influence on his political philosophy.
After eighth grade, Wales attended Randolph School, a university-preparatory school in Huntsville, graduating at age 16. He said that the school was expensive for his family, but that "education was always a passion in my household ... you know, the very traditional approach to knowledge and learning and establishing that as a base for a good life." He received his bachelor's degree in finance from Auburn University in 1986. He began his Auburn education when he was 16 years old. He then entered the PhD finance program at the University of Alabama before leaving with a master's degree to enter the PhD finance program at Indiana University Bloomington. At the University of Alabama, he played Internet fantasy games and developed his interest in the web. He taught at both universities during his postgraduate studies but did not write the doctoral dissertation required for a PhD, something he ascribed to boredom.
In 1994, Wales took a job with Chicago Options Associates, a futures and options trading firm in Chicago, Illinois. Wales has described himself as having been addicted to the Internet from an early stage, writing computer code during his leisure time. During his studies in Alabama, he had become an obsessive player of multi-user dungeons (MUDs)—a type of virtual role-playing game—and thereby experienced the potential of computer networks to foster large-scale collaborative projects.
Inspired by the successful initial public offering of Netscape in 1995, and having accumulated capital through "speculating on interest-rate and foreign-currency fluctuations", Wales decided to leave the realm of financial trading and became an Internet entrepreneur. In 1996, he and two partners founded Bomis, a web portal featuring user-generated webrings and, for a time, softcore pornography. Wales described it as a "guy-oriented search engine" with a market similar to that of Maxim magazine; the Bomis venture did not ultimately turn out to be successful.
Though Bomis had at the time struggled to make money, it provided Wales with the funding to pursue his greater passion, an online encyclopedia. While moderating an online discussion group devoted to the philosophy of Objectivism in the early 1990s, Wales had encountered Larry Sanger, a skeptic of the philosophy. The two had engaged in detailed debate on the subject on Wales' list and then on Sanger's, eventually meeting offline to continue the debate and becoming friends.
Years later, after deciding to pursue his encyclopedia project and seeking a credentialed academic to lead it, Wales hired Sanger—who at that time was a doctoral student in philosophy at Ohio State University—to be its editor-in-chief, and in March 2000, Nupedia ("the free encyclopedia"), a peer-reviewed, open-content encyclopedia, was launched. The intent behind Nupedia was to have expert-written entries on a variety of topics and to sell advertising alongside the entries to make a profit. The project was characterized by an extensive peer-review process designed to make its articles of a quality comparable to that of professional encyclopedias.
The idea was to have thousands of volunteers writing articles for an online encyclopedia in all languages. Initially, we found ourselves organizing the work in a very top-down, structured, academic, old-fashioned way. It was no fun for the volunteer writers because we had a lot of academic peer review committees who would criticize articles and give feedback. It was like handing in an essay at grad school, and basically intimidating to participate in.
In an October 2009 speech, Wales recollected attempting to write a Nupedia article on Nobel Prize-winning economist Robert C. Merton, but being too intimidated to submit his first draft to the prestigious finance professors who were to peer review it. Wales characterized this as the moment he realized that the Nupedia model was not going to work.
In January 2001, Sanger was introduced to the concept of a wiki by extreme programming enthusiast Ben Kovitz after explaining to Kovitz the slow pace of growth Nupedia endured as a result of its onerous submission process. Kovitz suggested that adopting the wiki model would allow editors to contribute simultaneously and incrementally throughout the project, thus breaking Nupedia's bottleneck. Sanger was excited about the idea, and after he proposed it to Wales, they created the first Nupedia wiki on January 10, 2001.