Author: Pamela Tom

Henry Chesbrough, Stefano DellaVigna, and Ulrike Malmendier have been named among the 2015 Thomson Reuters Highly Cited Researchers, according to “The World’s Most Influential Scientific Minds 2015,” published Jan. 14.

The three are among 70 global researchers honored in the field of economics and business, and among 38 UC Berkeley researchers from a variety of fields on the list.

Thomson Reuters, the global media firm, analyzed data from its Web of Science and InCites platforms to determine the most cited researchers from 2003 to 2013 across 21 academic fields. The effort produced a list of 3,000 highly cited researchers, around the world whose published papers are the most cited by their peers.

Henry Chesbrough, adjunct professor and faculty director of the Garwood Center for Corporate Innovation, is known as the father of the Open Innovation movement. According to Google Scholars, his most cited paper within the data period was “Open innovation: The new imperative for creating and profiting from technology,” Harvard Business Press, 2006.

Ulrike Malmendier, the Edward J. and Mollie Arnold Professor of Finance, holds appointments at Berkeley-Haas and UC Berkeley’s Department of Economics.

Malmendier’s most cited paper during the data period was “CEO overconfidence and corporate investment,” The Journal of Finance, December 2005.

Stefano DellaVigna, the Daniel E. Koshland, Sr. Distinguished Professor of Economics in the university’s Department of Economics is also a member of Haas’ Economic Analysis and Public Policy Group. DellaVigna’s most cited paper is “Psychology and economics: evidence from the field,” Journal of Economic Literature, June 2009.

Malmendier and DellaVigna co-founded the Berkeley Initiative in Behavioral Economics & Finance, supporting economic analysis with insights drawn from psychology.

Even when a startup fails, the risk pays off.

Tempted to launch a new business?

Entrepreneurs statistically fail more often than not, but new research suggests that the financial risk is not as great as previously thought, as failed entrepreneurs can return to the salaried workforce and recover their earnings quickly.

While prior research maintained that entrepreneurs bear more risk than salaried workers, Assoc. Prof. Gustavo Manso of the Haas Finance Group at UC Berkeley’s Haas School of Business found that entrepreneurs receive comparable lifetime earnings when they return to a salaried position and, therefore, are exposed to less risk than previously thought.

And those who remain entrepreneurs earn substantially more than their less adventurous counterparts over time.

“Would-be entrepreneurs may think they have a huge chance of failure and will be sacrificing earnings for the rest of their lives, but it’s not true,” says Manso. “Even if the business fails, entrepreneurs don’t suffer as much since they are able to quickly transition to the salaried workforce.”

The findings can be found in Manso’s working paper, Experimentation and the Returns to Entrepreneurship.

Manso followed the careers of entrepreneurs over three decades, including both founders of innovative startups as well as small business owners such as restaurant owners—successful and unsuccessful.

He used the National Longitudinal Survey of Youth-1979 (NLSY79) to model entrepreneurship’s return on investment, or ROI. He gained access to data on 12,686 young men and women who ranged in age from 14 to 22 years old when they were first surveyed in 1979.

The participants were interviewed annually through 1994—and continue to be interviewed every other year. The Longitudinal Survey also provided Manso with the participants’ demographics, education, careers, and labor market traits.

The survey revealed that 52% of entrepreneurial endeavors last less than two years.  Understandably, entrepreneurs who earned less while self-employed tended to abandon the solo route more often than those who earned more as entrepreneurs.

Over a lifetime, the entrepreneurs not only earn about 10% more but also do so with less risk than previously thought, according to Manso’s research. “The study suggests that becoming an entrepreneur is a rational decision and failing isn’t as bad as one would think,” says Manso. “It doesn’t hurt your lifetime prospects.”

Emotional appeals elicit compassion and compromise 

Is sympathy considered a sign of weakness in business negotiations?

Research by Laura Kray, a professor in the Haas Management of Organizations Group, suggests that when one party conveys information with emotional reasons behind it, the other party is more likely to develop sympathy, be more willing to compromise, and find creative solutions.

“Sympathy is an emotion that corresponds with good will,” says Prof. Kray. “In negotiations, it can translate into a willingness to problem solve in ways that might not otherwise occur.”

Kray’s research, “Is There a Place for Sympathy in Negotiation? Finding Strength in Weakness,” is forthcoming in the journal, Organizational Behavior and Human Decision Processes. The paper is co-authored by Aiwa Shirako, PhD 11, and People Analyst at Google, and Gavin Kilduff, PhD 10, and an assistant professor at New York University’s Stern School of Business.

The researchers also found that being transparent about one’s misfortune is more effective when initiated by a “low power” negotiator or someone in the weaker position. Negotiators in the stronger position who tried to gain sympathy were seen as manipulative.

The study involved 106 MBA students (30% female) and the negotiations took place as part of one of their classes. Participants were randomly assigned to negotiating teams to play out various scenarios.

One scenario involved a dispute between a general building contractor and a real estate developer over payment. The study focused on whether feeling sympathy helped the negotiations.

Before going on a trip, the developer told the contractor that quality counts. In an effort to improve workmanship, the contractor upgraded the type of wood used and the developer’s assistant approved the change. However, the developer decided to sell the property and therefore didn’t feel any upgrades were personally beneficial and didn’t want to pay for the more expensive materials. The contractor also owed the developer money for a previous loan. The contractor explained that he could be forced into bankruptcy if the developer called the loan and he reminded the developer of his good intentions.

While the researchers did not measure the reasons behind the developer’s response, the outcome suggests that the contractor’s statements may have triggered sympathy. In the end, both parties were more poised to work out an amicable agreement to split the additional cost of the wood than they were prior to those pleas.

In another study, the Haas research team measured the use of sympathy-eliciting appeals and also compared the effectiveness of those appeals to rational arguments and to sharing information that benefits both parties.  When the weaker party appealed to the stronger party, shared vulnerabilities, and proposed a solution that would also benefit the stronger party, the latter felt sympathy and was more motivated to help.

A person tasked with negotiating an outcome may not always want to appear weak but the study shows that sharing one’s vulnerability in a genuine way can be beneficial.

Prof. Kray says the results are encouraging and give negotiators more tools to work out compassionate solutions.

“Our findings reveal an optimistic message. Even when people are in powerful positions, situations in which cold-hearted, rational actors might be expected to behave opportunistically, we are finding instead that their feelings of sympathy motivate them to help the disadvantaged,” says Kray.

Laura Kray is the Warren E. and Carol Spieker Chair in Leadership at Berkeley-Haas.

After the 1996 telecom deregulation, American cable, broadband, and phone companies became highly strategic in their campaign finance strategy, using donations to state legislators to gain advantage with appointed regulators.

And when their competitors started opening their wallets, companies and PACs became even more generous, according to new research.

“The Market for Legislative Influence Over Regulatory Policy,” forthcoming in Advances in Strategic Management, illustrates how telecommunications companies—from established providers such as Ma Bell to the newer players who gained entry to local markets—have used campaign donations to create their own channel of influence.

“Firms are clearly trying to manage their regulatory environment, and even if they don’t want to donate, they have to respond when their competitors try to manage their environment,” says Rui J.P. de Figueiredo, an associate professor in the Haas Business and Public Policy Group and the paper’s lead author. De Figueiredo studies the intersection of organizations and public policy.

Incumbents wanted to maintain their advantage by keeping prices for access to telephone networks high, while newer entrants wanted prices low so they could compete. “Firms may not always agree on what they want from regulators, but they are essentially required to try to influence policy in states where regulation is up for grabs,” says de Figueiredo.

The paper is co-authored by Geoff Edwards, PhD 04, an economist who currently serves as vice-president at Charles River Associates and is one of the first to test campaign contribution strategies by rival interests at the state level.

The study also found that regulators who are political appointees are generally more responsive to the companies than those who are elected by voters. The firms donate more, and expect their contributions to have a bigger effect, when regulators are beholden to the legislature for their position.

The study’s findings are based on data collected from FollowTheMoney.org, a nationwide, non-partisan archive of political contributions and their sources. The study also factored in the characteristics of the donating firms (size, location, and whether they operate in more than one state); the political environment (who controlled the legislature and whether regulators were elected or appointed); and the state’s demographics (how many jobs the companies provide, how much the other employers in the state rely on and utilize the telecommunications industry). Then the researchers analyzed and calculated how contributions have influenced policy and also how competing firms have responded to each other’s donations.

The results also imply, says de Figueiredo, that engaging in “non-market” strategies with government agencies, interest groups, or the media, in addition to market strategies that focus on customers, suppliers, and direct competitors, is an important way for firms to gain advantage.

While this paper focuses on the behavior of firms, an earlier study by Prof. de Figueiredo found that regulators are indeed influenced by political donations when crafting policies. “In that study, the firms that gave the most gained fairly significant market advantages in terms of the regulated prices which are paid to incumbents for access to their local phone loops by entrants,” says de Figueiredo.

In the late 1990s, investor emotion played a significant role in inflating the dot-com bubble, and ultimately, making a lot of people rich. Emotional excitement not only creates stock market bubbles, but research shows that the frenzy actually causes them to grow.

For the study’s experiment, participants’ emotions were stimulated by watching popular action films—such as Mr. and Mrs. Smith with Brad Pitt and Angelina Jolie playing married assassins—prior to making buying or selling stocks.

Forthcoming in the Review of Finance, “Bubbling with Excitement: An Experiment,” is co-authored by Finance Prof. Terrance Odean, Haas Finance Group, along with Eduardo B. Andrade, professor at the Brazilian School of Public and Business Administration and Shengle Lin, assistant professor at San Francisco State University.

“We observed a lot of excitement in conjunction with real-world events such as the dot-com bubble and ‘tulip mania’ in 1637, and we wanted to see if people’s high arousal would increase the size of the bubble,” says Odean.

Their experiment compared investor behavior under three emotional states that varied in both intensity and whether they were positive or negative: excitement (high intensity and positive), calm (low intensity and positive), and fear (high intensity and negative).

The researchers recruited 495 participants from UC Berkeley’s Xlab subject pool. Each experiment included nine participants who were given an allotment of cash and shares of a fictional asset to trade.

After three practice rounds of trading, each participant watched a video selected to induce one of the three desired emotional states. Next, they answered two short questions about their emotional state before proceeding to 15 rounds of trading.

The results: participants who experienced intense positive emotions prior to trading—for example, those who watched action films such as Knight and Day with Tom Cruise —were more aggressive, pushing prices up until the final rounds. Those who watched scary or movies—such as Stephen King’s Salem’s Lot or the environmental film, Peace in the Water—proceeded more cautiously.

Odean says the research increases our understanding of how bubbles work. “As asset prices went up and investors got excited, they were more likely to do uncritical buying and drive prices up more,” he says. “In the real world, triggers for excitement could also lead to inflated prices, which is not necessarily a good thing when the bubble can burst.”

When Barracuda Network’s stock price tumbled almost 35 percent in one day last September, a new system developed by Berkeley-Haas researchers had already flagged the signs that led to the fall.

The new crash-risk system, based on a study of 14 years of stock data, aims to help investors actively avoid price crashes. The system is based on flags which researchers developed from variables associated with stock price declines. When a company receives three or more flags, it is significantly more likely that its stock price will crash.

“We have found these crash flags to be an effective tool for investors,” says Professor Richard Sloan, Haas Accounting Group. “Barracuda had been consistently raising between four and five flags over the previous month, so this is a good example of the price crash flag system in action. Despite reporting a healthy 14% revenue growth rate, Barracuda disappointed investors who had been expecting even more.”

The study, “Navigating Stock Price Crashes,” is co-authored by Prof. Sloan; B Korcan Ak, Berkeley-Haas PhD Candidate; and RS Investment’s Steve Rossi, an analyst, and Scott Tracy, a portfolio manager.

About 70% of stock market crashes occur when earnings announcements are made, says Prof. Sloan.

“We wanted to understand the types of signals that can help to predict such price crashes,” he says.

The researchers studied 14 years worth of stock return data between 2001 and 2014. The sample included nearly 60,000 observations consisting of companies trading on a major US stock exchange with a market capitalization of at least $100 million at the beginning of the period. They rated each stock on a number of variables to determine which companies should be assigned crash flags.

They identified five variables that were particularly helpful in predicting stock price crashes. These variables include unusual trading volume, high short interest, large accounting accruals, extreme valuations and high growth expectations. Stocks ranking in the top quintile on at least three of these variables were significantly more likely to experience a price crash over the next six months.

“We’re not necessarily advocating that investors should trade stocks based on crash risk flags alone,” says Prof. Sloan. “But we strongly suggest that stocks with three or more flags be carefully examined before continuing to hold them through earnings season. Our research should help investors to construct equity portfolios with fewer stock price crashes, higher returns, and lower volatility.”

The success of online networking sites such as LinkedIn illustrates the popularity of building a wide-ranging contact list. Yet when it comes to raising one’s profile within the workplace, female employees stand much to gain from formal, face-to-face mentoring programs, according to a new study.

In the paper, “Network Intervention: A Field Experiment to Assess the Effects of Formal Mentoring on Workplace Networks,” (Social Forces, Volume 94, Issue 1, September 2015), Assistant Professor Sameer Srivastava of UC Berkeley’s Haas School of Business documents the results of a field experiment involving 139 “high potential” employees at a software development lab for a U.S.-based company in China.

The paper reports that women gained more social capital from affiliation with a high-status mentor than their male counterparts.

Srivastava says that formal mentoring can expand professional networks in a variety of ways—for example, by building social skills and providing access to the elite members of an organization. Notably, simply being publicly affiliated with a high-status mentor appeared to benefit women more than it did the men in the program. Qualitative interviews pointed to one main reason: women experienced a greater increase in visibility and legitimacy as a result of their mentor affiliations than did male participants. As a result, women became more attractive network partners for their colleagues.

“It is well understood that networks form organically. In contrast, I am interested in understanding how managers can actively shape workplace networks,” says Srivastava. “In this company, as in many other comparable companies, technical employees tended to build relatively small networks, mostly within their own groups. Senior leadership believed that the people who did well in the organization were those who had not only depth but also breadth of social capital.”

The company had been experimenting with different ways to help employees develop this breadth of social capital and tried, among other things, a formal mentoring program. The program assigned employees to shadow a more senior person in another part of the organization for about a dozen days over a two-to-three-month period.

During this time, the protégés attended meetings with their mentors and worked on short project assignments. The senior employees’ objective: transfer some of their organizational social capital to their protégés.

“Most mentoring research is based on cross-sectional surveys that are ill-suited to assessing whether formal mentoring programs actually work. The goal of this study was to provide more credible evidence about whether these programs can work, and if so, for which kinds of employees,” says Srivastava.

The study provided this evidence by comparing the size of participants’ reported networks before and after their mentoring assignments. Srivastava then assessed this change relative to a control group of employees with similar past performance and perceived potential who did not participate in the program. He also compared network changes across two groups of employees who participated in the program at different times.

Because the study was based on one particular organization and set of employees, Srivastava says that care must be taken in generalizing the findings to other contexts. Nevertheless, he believes the findings support the idea of formal mentoring programs as a means of addressing differences in the kinds of organizational networks that women and men tend to form, which, in turn, contribute to gender inequality in the workplace.

JC Penney implemented a “best price” strategy in 2012, assuming consumers prefer fair, everyday prices as opposed to sale prices that are discounted from original, inflated prices.

It was wrong.

Longtime customers—loyal fans of sales and coupons—rejected the new pricing policy, and JC Penney reinstated its old pricing model that included frequent discounts.

In contrast, retailers like Zara, which sells women’s and men’s clothing, relies on a low rate of discounting and low stock replenishment or high product turnover. If customers don’t buy a new product right away, it may disappear before they commit to buy.

But there is a third pricing strategy that incorporates the benefits of both approaches and allows the retailer to better match supply with demand. The “discount-frequently” pricing strategy allows retailers to charge high prices when demand is high and is flexible unlike an “every day low price” strategy or “static pricing.”

“A firm that cares about attracting customers to the store as well as maintaining the flexibility to match supply with demand would benefit from the discounting frequently policy,” says Pnina Feldman, assistant professor, Haas Operations and Technology Management Group.

In the paper, “Price Commitments with Strategic Consumers: Why it can be Optimal to Discount More Frequently … Than Optimal” (Manufacturing and Service Operations Management, July 2015), Feldman and co-author Gérard P. Cachon, The Wharton School, University of Pennsylvania, found the discount-frequently strategy proved to be the most optimal.

The findings are based on game theoretic models that compared expected revenue and profits within different pricing strategies. All of the models assumed that customers incur a purchase “cost”—time and effort—to physically shop at a store and will only go shopping when they think it will be worth their while.

Typically a retailer may increase prices when demand is high, or lower prices when demand is low. This is called “dynamic pricing.”

When a retailer discounts prices frequently—even in cases where they would rather charge a high price—Feldman says customers are more likely to visit the store because they value the discounts. At the same time, by not committing to an “every day low price,” it can still raise prices if demand turns out to be very high, and their customers will not abandon them. In this scenario, customers understand that demand may be high so they may not get a big discount; but given the store’s history, they believe they are not being taken advantage of so it’s worth it to continue to shop that store more.

The researchers also contend that customers are equally as strategic as merchants. The discount-frequently strategy is good, says Feldman, if the merchant wants to get more customers to visit the store. Customers may also delay their shopping in anticipation of future discounts. If the latter behavior is more important to the retailer, discounting frequently may not the optimal strategy.

“Committing to discount frequently maximizes revenues by balancing the trade off between dynamic and static pricing,” says Feldman.

“The discount-frequently strategy is about making commitments without sacrificing flexibility. Retailers think of dynamic pricing as charging the best prices to match supply and demand, “ says Feldman. “But by implementing a dynamic pricing strategy that makes no price commitments, retailers do not take into account today’s smart and savvy customers who will visit the store less frequently if they can’t depend on good prices and product availability.”

Berkeley-Haas researchers dive into the brain to validate consumer insights

Marketers would love to get inside the consumer’s brain. And now they can. Researchers at UC Berkeley’s Haas School of Business are using functional magnetic resonance imaging (fMRI) to see if what people say about brands matches what they are actually thinking.

In their paper, “From ‘Where’ to ‘What’: Distributed Representations of Brand Associations in the Human Brain (Journal of Marketing Research: August 2015, Vol. 52, No. 4), co-authors Ming Hsu and Leif Nelson, Berkeley-Haas marketing professors, and Yu-Ping Chen, Berkeley-Haas Ph.D., used fMRI to test a classic marketing proposition that consumers associate human-like characteristics to brands. The authors say the results provide marketers with a rigorous method that they can potentially use to verify core customer insights.

“Surveys and focus groups are the work-horses for generating customer insights. They are fast, inexpensive, and offer tremendous value for marketers,” explains Hsu, who served as senior author of the study, “However, the inherent subjectivity of these measures can sometimes generate skepticism and confusion within companies, often leading to difficult conversations between managers within marketing and those outside.”

The researchers scanned the study’s participants in an fMRI machine while they viewed logos of well-known brands such as Apple, Disney, Ikea, BMW, and Nestle. After they finished the scan, the participants then took a survey that asked about the characteristics that they associated with each brand. Next, using a set of data mining algorithms, the researchers used the participants’ brain activity to predict the survey responses.

“We were able to predict participants’ survey responses solely from their brain activity,” says Chen. “That is, rather than taking participants’ word at face value, we can look to their neural signatures for validation.”

Although conducting fMRI studies on a routine basis is still likely to be cost prohibitive for most companies, the current findings point to a future where marketers can directly validate customer insights in ways that were not possible before.

“In the past, neuroscience has been providing answers to questions that marketers weren’t quite asking, and marketers were asking questions that neuroscientists didn’t have answers for,” says Prof. Nelson.

“Our research aims to close some of that gap,” adds Hsu.

See Abstract.

See full study.

Stories about corrupt CEOs raiding the corporate piggy bank would appear to be the best argument for shareholder protection laws known as “anti-self-dealing laws.” But there’s another bonus. A new study finds in countries with strong legislation to prevent fraudulent corporate behavior, banking crises have a less severe impact on firms and the economy in general.

The study, “How the stock market can play this critical role is the subject of “Spare Tire? Stock Markets, Banking Crises, and Economic Recoveries,” forthcoming in the Journal of Financial Economics, is the first assessment of the role of shareholder protection laws in shaping firms’ response to a banking crisis.

Co-authored by Prof. Ross Levine, the Willis H. Booth Chair in Banking and Finance at UC Berkeley’s Haas School of Business; Chen Lin, the Stelux Professor of Finance at the University of Hong Kong; and Wensi Xie, Assistant Professor at the Chinese University of Hong Kong; the paper is forthcoming in the Journal of Financial Economics.

During a similarly sized banking crisis, firms in countries with strong shareholder protection laws raised more money through stock sales, performed better in terms of profits and investment efficiency, and terminated fewer employees than similar firms in countries with weaker shareholder protection laws.

Banking crises make it harder for firms to obtain loans, threatening their profitability and survival. That’s when the stock market can act like a “spare tire” —by allowing firms to issue equity to keep capital moving so firms can remain solvent and avert further damage to the economy. But strong shareholder protection laws must already be in place, according to Prof. Levine who studies the effects of regulation on the finance industry and how they impact ordinary people.

“This isn’t just about trading and profits,” says Levine. “Much of the population may not know anything about the stock market, but an economic crisis could cause people to lose their homes or jobs.”

The study builds upon a conjecture by Alan Greenspan, former chairman of the Federal Reserve. In 1999, Greenspan argued that the banking crisis in Japan and East Asia would have been less severe had those countries built a legal infrastructure to allow stock markets to provide corporate financing when the banks could not.

“A spare tire is an alternative source of external financing during a crisis. If everything is ok, we wouldn’t put the spare tire on. But if you get a flat, you’re glad that you have a spare,” says Levine.

The researchers compiled data on over 3,600 firms across 36 countries that experienced at least one systemic banking crisis from1990 through 2011. They also factored in shareholder protections in the sample countries, firm profitability, and the duration of the banking crises. By examining what happened to many firms over two decades, the researchers were able to rule out many other potential explanations for why firms in different countries respond differently to crises, such as differences in the size of the crisis; the level of economic development; the sophistication of financial markets; the potential role of other laws; and accounting protocols.

No matter how they cut the data, the evidence indicated that the ability to access stock markets when the banks go flat has a big effect on businesses and, more important, on the lives of ordinary workers.

“The mechanisms are clear,” says Levine. “When a country has stronger shareholder protection laws, people are more enthusiastic about buying shares in firms because corporate insiders are less able to take advantage of small investors and this enthusiasm translates into more money for firms, allowing them to weather banking crises more effectively.”

See full paper.

People who observe positive nonverbal acts toward black Americans become less likely to perpetuate racial discrimination

The “Black Lives Matter” hashtag evolved as a call for social change aimed at increasing the conversation about racial inequality. But what if social change was less dependent on talking and more dependent on nonverbal communication?

New research finds observing a white American engage in small nonverbal acts such as smiling more often, making eye contact for longer periods of time, and standing in closer proximity to a black American makes the observer less prone to racial biases. Specifically, small acts of positivity by white Americans towards African Americans and other black Americans causes observers to hold fewer stereotypes about black Americans and to have more positive attitudes towards black Americans in general.

The findings are described in “Some Evidence for the Nonverbal Contagion of Racial Bias,” (Organizational Behavior and Human Decision Processes, June 2015), co-authored by Dana R. Carney, assistant professor, University of California, Berkeley’s Haas School of Business; Greg Willard, research associate, Harvard University; and Kyonne-Joy Isaac, graduate student, Princeton University.

“Prejudice is often less overt. It manifests often as micro acts of aggression,” says Carney. “What is hopeful is that our study also indicates that positive behavior toward different social groups can be contagious.”

Four related experiments to test the contagious effects of racial bias produced these results:

1. Observers of micro-positive behavior toward a black American subject formed more positive impressions.
2. Observers of micro-positive behavior toward a black American subject adopted fewer racial stereotypes.
3. Observers of micro-positive behavior toward a black American subject were found to have less racial bias towards black Americans in general.
4. Observers must also be aware that negative social behavior is being directed toward a black person in order to produce a pro-black bias outcome.

The experiments consisted of participants who were randomly assigned to watch one of two types of videos.  In one type of video, highly biased white Americans exhibited small, negative, and nonverbal behaviors of bias, such as less smiling, less leaning in, and less gazing, toward a black American. The second type of video showed whites who held black Americans in high regard and naturally expressed their positive biases through more smiling, more leaning in, and more gazing.

In Experiment 1, for example, participants rated the black American in the video on how much they liked or disliked the person or whether or not they would want to be friends with this person. They also rated the black American on six adjectives: kind, considerate, thoughtful, hostile, unfriendly, dislikable. The results: participants liked and wanted to be friends with the black American who was on the receiving end of positive micro nonverbal behaviors significantly more than they liked and wanted to be friends with black Americans who received negative nonverbal micro aggressions.

Full study

Working women are “leaning in” and supporting more females in leadership roles, but a new study finds that having a female manager doesn’t necessarily equate to higher salaries for female employees. In fact, women can sometimes take an earnings hit relative to their male colleagues when they go to work for a female manager.
“Agents of Change or Cogs in the Machine? Re-examining the Influence of Female Managers on the Gender Wage Gap” (American Journal of Sociology, May 2015) is co-authored by Sameer B. Srivastava, assistant professor, and Eliot L. Sherman, doctoral student—both at UC Berkeley’s Haas School of Business. The study examined how the salaries of both male and female employees changed when they switched from reporting to a male manager to reporting to a female manager (and vice versa).

Whereas most previous research has suggested that female managers are “agents of change” who act in ways that reduce the gender wage gap, this study found no support for this assertion. In fact, a subset of switchers—low-performing women who switched to working for a high-performing female supervisor—fared worse financially, not better, than their male colleagues making a comparable switch.

According to Srivastava, this effect can occur when people see themselves as part of a valuable group but worry that others won’t see them that way. “A high-performing woman might, for example, worry about being devalued because of her association with a low-performing female subordinate,” he explains. “This might lead her to undervalue the subordinate’s contributions.”

Srivastava and Sherman analyzed 1,701 full-time employees in the U.S. who worked for a leading firm in the information services industry between 2005 and 2009. The researchers had access to complete employment data: salary, reporting structure, annual performance evaluations, and demographic information.  For example, the average age of employees was 43; average length of employment was 8.85 years; and merit increases ranged from 3% to 5%.

The authors conclude that it may be wishful thinking to assume that the gender wage gap will automatically close as more and more women take management positions. Instead, they argue that, for fundamental change to occur, the increasing number of women managers must be matched by an organizational culture that is keen on gender equality, fostering initiatives to reduce tokenism, and encouraging women to positively identify with their gender in the workplace.

See Abstract.

Not everyone may care about having an impressive job title or a big, fancy house but all human beings desire a high level of social status, according to a newly published study.

For decades, researchers have argued both sides of the question: is it human nature to want high standing in one’s social circle, profession, or society in general?

Prof. Cameron Anderson sought to settle the debate. In “Is the desire for status a fundamental human motive? A review of the empirical literature” (Psychological Bulletin, Vol 141(3), May 2015), Anderson and Berkeley-Haas Ph.D. candidates John Angus D. Hildreth and Laura Howland conducted an extensive review of hundreds of studies using a common set of criteria. They found that, yes, status is something that all people crave and covet – even if they don’t realize it.

“I usually study the sexy angle of power and confidence but with this one, it’s about everyone. Everyone cares about status whether they’re aware of it or not,” says Anderson.

Anderson is a professor of management and the Lorraine Tyson Mitchell Chair in Leadership & Communications II at UC Berkeley’s Haas School of Business. He says status is considered universally important because it influences how people think and behave.

“Establishing that desire for status is a fundamental human motive matters because status differences can be demoralizing,” says Anderson. “Whenever you don’t feel valued by others it hurts, and the lack of status hurts more people than we think.”

Some theorists have argued that wanting status is an innate desire for reputation or prestige. On the other end of the spectrum, scholars cast doubt on the notion that status plays an important role in one’s psychological well-being or self-esteem. Anderson and his team researched a wide range of studies dating back more than 70 years. First, they defined and conceptualized status to “distinguish it from related constructs such as power and financial success.” They defined status as comprising three components: respect or admiration; voluntary deference by others; and social value. Social value (also known as prestige) is bestowed upon individuals whose advice is sought by others. Prestige can also be measured by how much others defer to an individual.

Next, the researchers studied the previous literature that defines what it takes for a motive to be fundamental and innate to people. Four areas of criteria determined whether the desire for status is fundamental.

1. Well-Being and Health – the attainment of status must contribute to long-term psychological and physical health.
2. Activities – if the desire for status is fundamental, it must drive goal-oriented behavior aimed at attaining and maintaining status, drive a preference for select social environments, and drive people to react strongly when others perceive them as lacking status.
3. Status for Status’ Sake – the desire for status is only that; the motivation for status is not dependent on other motives
4. Universality – the desire for status must operate and extend over many types of cultures, genders, ages, and personalities.

The strongest test of the hypothesis is whether the possession of low status negatively impacts health. The studies reviewed showed that people who had low status in their communities, peer groups, or in their workplaces suffer more from depression, chronic anxiety, and even cardiovascular disease. Individuals who fall lower on the status hierarchy, or what the authors call the “community ladder,” feel less respected and valued and more ignored by others.

Anderson hopes the study’s results influence future research including but not limited to management literature. “The desire for status can drive all kinds of actions, ranging from aggression and violence, to altruism and generosity, to conservation behavior that benefits the environment. The more we understand this basic driver, the more we can harness it to guide people’s decisions and actions to more productive paths.”

Study determines offering drug retailers a per-unit purchase subsidy benefits patients

Forty percent of all malaria-caused deaths in sub-Saharan Africa occur in the Democratic Republic of Congo and Nigeria, according to the World Health Organization. The private sector “supply chain” manages 74% of the drug volume in Congo and 98% in Nigeria where malaria-stricken patients rely on “drug shops” and other for-profit retail outlets to get life-saving medicine.

New research forthcoming in Management Science determines that the “shelf life” of malaria-fighting drugs plays a significant role in how donors should subsidize the medicine in order to ensure better affordability for patients.

New concerns over the emergence of drug resistant parasites are yet one more reason that private donors who fund malaria drug programs remain intent on making medicine available and affordable to patients. Artemisinin-based combination therapies, known as ACTs, are considered the best anti-malarial drugs but the lack of affordable ACT supplies for the poor motivates private donors to intervene and improve access. 

In “Subsidizing the Distribution Channel: Donor Funding to Improve the Availability of Malaria Drugs,” Terry Taylor, associate professor, UC Berkeley’s Haas School of Business, and co-author Wenqiang Xiao, New York University’s Stern School of Business, analyzed purchase subsidies vs. sales subsidies.

Donors structure their purchase and sales subsidies per each product unit. A purchase subsidy is a discount or rebate offered to the retailer at the point of sale or when he places his order.  In contrast, the retailer only benefits from a sales subsidy when he sells the product to the consumer.

By analyzing the product characteristics (short vs. long life), customer population (degree of heterogeneity or diverse makeup), and the size of the donor’s budget, Taylor and Xiao found that for long shelf life products, such as ACTs (with a 24 to 36-month life from the factory to expiration), donors should only offer a purchase subsidy. In contrast, if a product has a short shelf life, a sufficiently large donor budget and a diverse customer population, it is optimal to offer a sales subsidy in addition to a purchase subsidy. Why?

“The sales subsidy becomes more attractive for perishable products because you don’t have to subsidize a purchased product that doesn’t sell,” says Taylor.

Unlike previous research, the study’s micro-level approach focuses on distribution channel details such as demand uncertainty, supply-demand mismatch, and the impact of subsidies on stocking and pricing decisions.

“In principle, it would seem that you would want to use both levers to influence stocking and pricing decisions,” says Taylor. “However when we took both into account, our model shows that the purchase subsidy is more effective in increasing consumption of the medicine and ultimately, saving lives.”

Taylor hopes these findings will help guide donors in improving the private-sector distribution channel for malaria drugs. He hopes that in the future, the study’s results could also help inform subsidy decisions for other global health products such as oral rehydration salts, the first-line of treatment for childhood acute diarrhea in developing countries.

See paper.

The push for a more globally competitive American workforce has led to calls for increased incentives for people to join educational and training programs.

While critics question if the training efforts are worth it, new research from the University of California, Berkeley’s Haas School of Business argue that they are an effective option for employers.

A one-time outcome-based financial incentive, if based on proven psychological techniques, could help workers embrace a long-term and sustained interest in training says Teck-Hua Ho, the William Halford Jr. Family professor of marketing at Berkeley-Haas.

“In a constantly changing work environment, workers must commit and continue to participate in training in order to stay relevant and competitively employable,” Ho wrote in a study: Can a One-time Incentive Induce Long-Term Commitment to Training?

The paper, co-written by Catherine Yeung of the National University of Singapore, highlights the dilemma faced by many U.S.-based small- and medium-sized businesses. They need highly-skilled workers to compete, but, unlike big corporations, many of them do not have the resources for comprehensive, sustained, mandatory programs.

In many cases, small- and medium-sized businesses must look to outside organizations or the government to provide training and must rely on employees’ self-motivation to actively participate in it, Ho and Yeung wrote.

The problem is that workers’ participation in such training is likely to be low because courses are undertaken at their own discretion, potentially leaving them and their employers out-of-touch with the needs of the market, the authors said.

However, based on a field study conducted in collaboration with a non-profit vocational center, Ho and Yeung found that workers could be convinced to commit to long-term training based on incentives that are presented as a reimbursement to absorb out-of-pocket expenses instead of as a cash reward, in combination with a requirement to make a non-binding commitment to take specific courses of their choosing.

The field study involved 4,000 workers, some of whom were offered a one-time cash incentive of $60 to take two, two-day courses, each of which costs $30, within four months. The $60 incentive was either presented to the workers as a reimbursement to absorb the out-of-pocket expenses of taking the training courses, or as a cash reward for taking them.

Regardless of how the incentive was presented, workers only received it if they completed both courses within four months. Some of the workers were also asked to make a non-binding commitment to undertake training by specifying which two courses to take and when to take them.

The study found that workers who received a one-time incentive on average completed six times more courses than those who did not. Tracking these workers for another nine-and-a-half months in which no incentives were offered showed that only those who had received the one-time incentive as a reimbursement to absorb out-of-pocket expenses and made a non-binding commitment to specific courses continued to stick with the training program.

Ho and Yeung said their work was based on known studies on the use of incentives to influence behavior, such as programs used to encourage people to exercise, lose weight, and, in developing countries, to send their children to school.

At a time of rising worries that American workers are falling behind better-educated and better-trained employees in Asia and Europe, they state that the study presents important options for employers and government.

“While managers and policy makers know that incentives can motivate workers, many are not aware of the importance of incorporating psychological techniques into the design of an effective incentive program,” Ho and Yeung wrote.