In honor of Latinx Heritage Month, we’re featuring interviews with members of our Latinx community.
Asst. Prof. Jose Guajardo joined the Haas Operations and IT Management Group in 2012 after earning his PhD from the Wharton School. He’s focused his research on business model innovation and business analytics in operations, carving out a niche focused specifically on service business models. He’s delved into the sharing economy and found that peer-to-peer rental services can actually help manufacturers, rather than hurting sales. More recently, he’s found that businesses going solar may be better off leasing rather than buying, and also studied how rent-to-own businesses can best operate in the developing world.
We spoke with Guajardo about his Chilean heritage and how it influences his work.
What are the roots of your heritage?
I was born in Chile. I grew up in the south and went to college in Santiago. I moved to the U.S. together with my wife to do our PhDs at Penn, and stayed in the U.S. since then. This is also how I became the father of three Chilean-Americans, all of them born in Berkeley.
How does your heritage shape your career, your cultural values, or the way that you go about your research and/or teaching?
It has had a significant impact in my research and teaching. Several of my research projects benefit from my connection with Chile (co-authors at the University of Chile, data from companies operating in Chile and Latin America, etc.). Recently, I taught in Spanish at Haas in a management program for executives visiting Berkeley from a wide range of Latin American countries. And frequently in my regular teaching I make reference to the business reality in Latin America.
Video: Fans of Guajardo’s favorite soccer team, Club Universidad de Chile, show their “pasion azul” (passion for blue, or the team’s color) in a game against rivals Universidad Católica.
Is there an aspect of your cultural heritage that you enjoy sharing with others?
Latin America is about passion. Passion with a sense of urgency. Attending a football match or a music event anywhere in Latin America can be an experience. Spending September 18 in Chile can be a good example too, as the whole country celebrates the national independence in quite a unique way. Hard to explain in words, but easy to recognize when you experience it.
Cities are a source of fascination for new Berkeley Haas Asst. Prof. Nick Tsivanidis, and an endless source of data: He’s used satellite images and machine learning to study how Indian slums have changed over time, and cell phone data to look at Syrian refugees’ migration to Amman, Jordan—where they’ve doubled the size of the capitol from 2 million to 4 million.
“By 2050, it’s projected that about 2.5 billion more people will move into cities, mostly in Africa and East Asia,” Tsivanidis says. “There’s a huge opportunity there to get the backbones of these cities right, to get the benefits of urbanization and avoid the demons of density.”
Tsivanidis is the newest member of the Berkeley Haas faculty, joining the Real Estate Group with a joint appointment in the Department of Economics. His focus is using granular data and natural experiments to understand and potentially shape how cities develop. He’ll begin teaching macroeconomics in the MBA program in the spring.
“We’re thrilled to welcome Nick to our real estate faculty,” says Prof. Catherine Wolfram, associate dean for academic affairs and chair of the faculty. “He’s pushing the frontier to deepen our understanding of urbanization in developing economies. These are super important issues, given just how fast these cities are predicted to grow.”
Interest in developing economies
Tsivanidis, who grew up in London, first got interested in development when he taught English at a primary school in Tanzania during a gap year between high school and college. He returned home to study philosophy, politics, and economics at Warwick University as an undergraduate, before heading to Yale University for a master’s in international and development economics.
He got more on-the-ground experience during a year in Rwanda studying the spread of technology among coffee farmers. He then moved to Chicago, spending another year as a researcher before beginning his PhD at the University of Chicago, where he switched his focus to urban economics.
“Having grown up in a city, and seeing the differences between cities and the countryside, it’s clear that cities are the future lands-of-opportunity for these countries,” he says. “That’s what urban economics is all about: Can we measure and understand the benefits of population concentration in cities? How does this trade off with the downsides of density? And how can economic policy help us maximize those benefits and minimize the costs?
For his doctoral thesis, Tsivanidis looked at innovative ways that cities can improve their commuting infrastructure, studying the world’s largest bus rapid transit system in Bogotá, Colombia. Bus rapid transit systems are far cheaper and faster to build than subway systems, and nearly as fast. He analyzed multiple data sources to look at the combined benefits of Bogotá’s system, from more leisure time for commuters to higher land prices along the transit route.
Most recently, Tsivanidis spent a postdoctoral year at Dartmouth College. He also serves as co-director of the Cities Research Programme in the International Growth Centre at the London School of Economics.
Tsivanidis says he was drawn to Berkeley for the strength of its real estate group, its focus on urban economics and energy economics, and the opportunity to collaborate with exceptional researchers in economics, agricultural economics, the School of Information, and across campus.
He’s also looking forward to exploring the Bay Area’s natural beauty with his wife and one-year-old. “We loved Chicago, but it was very flat, so we’re looking forward to doing a lot of hiking.”
Several Haas faculty have recently been honored for their research and teaching.
Honorees include Prof. Emeritus David Mowery, Adj. Prof. Henry Chesbrough, Prof. Miguel Villas-Boas, Assoc. Prof. Yaniv Konchitchki, Assoc. Prof. Panos Patatoukas, Prof. J. Miguel Villas-Boas, Prof. Ernesto Dal Bó, and Prof. Frederico Finan.
Prof. Emeritus David Mowery honored as outstanding educator for mentoring PhD students
The award, established in 2007, recognizes a strategy scholar who has demonstrated outstanding commitment to PhD and doctoral education, as well as ongoing development of junior colleagues. The awards committee recognized Mowery’s exceptional contributions to the field of strategy through mentoring PhD students, who have excelled to become top scholars of the field.
“In the early 2000s until his retirement, many people (very rightly) regarded David as the top PhD advisor in the econ-based strategy field. Mowery student after Mowery student got top jobs at top schools, and most of us have blossomed,” wrote one former student in the award nomination. ”David did this by carefully reading our papers, giving us very sound advice, and most of all, being someone who didn’t try to influence our direction—unless we were struggling with direction—but instead tried to influence the quality of our work.”
The Irwin Reception included speeches from several of Mowery’s former students, who spoke about the impact he had on their careers. More than (two dozen?) of Mowery’s former students attended.
Mowery, a member of the Haas Business & Public Policy Group, is the William A. & Betty H. Hasler Professor Emeritus. His research contributions are in the areas of economics of innovation and technological change, strategic management of technology and innovation, and international trade policy and technology policy. He has authored or co-authored 19 books and over 100 academic articles in numerous top journals. He has served as assistant to the counselor, Office of the United States Trade Representative, and as a fellow at the Council on Foreign Relations.
Adj. Prof. Henry Chesbrough recognized for leadership in technology management
Adj. Prof. Henry Chesbrough received the Leadership in Technology Management Award from the Portland International Center for Management of Engineering and Technology (PICMET) at a banquet on Aug. 27.
The award honors individual who have provided leadership in managing technology by establishing a vision, providing a strategic direction, and facilitating the implementation of strategies for that vision. It was established in 1991.
Chesbrough, who coined the term “open innovation,” is educational director of the Garwood Center for Corporate Innovation at Berkeley Haas. His research focuses on technology management and innovation strategy. Chesbrough is the author of six books, including “Open Innovation Results: Going Beyond the Hype and Getting Down to Business”, due out in November.
Profs. Konchitchki and Patatoukas receive prestigious accounting literature award
Assoc. Prof. Yaniv Konchitchki (center left) and Assoc. Prof. Panos Patatoukas (center right) received the 2019 Notable Contributions to Accounting Literature Award from at the American Accounting Association Annual meeting in Lakewood, Florida on Aug. 14. Read the full article here.
Prof. Miguel Villas-Boas receives highest honor in marketing science from INFORMS
Prof. Miguel Villas-Boas was awarded the 2019 INFORMS Society for Marketing Science Fellow Award, which is the organization’s highest award recognizing cumulative scholarship and long-term contributions to the marketing field.
Villas-Boas was honored at the INFORMS Marketing Science Conference in Rome, Italy in June.
The Institute for Operations Research and the Management Sciences (INFORMS)
aims to foster the development, dissemination, and implementation of knowledge, basic and applied research, and science and technologies that improve the understanding and practice of marketing.
Villas-Boas has published extensively in competitive strategy, design of marketing organizations, distribution channels, customer relationship management, customer recognition, product line design, and industrial organization. His research has appeared in several journals, including Marketing Science, Management Science, Journal of Economic Theory, RAND Journal of Economics, Journal of Marketing Research, and Journal of Economics and Management Strategy.
Villas-Boas shares the 2019 INFORMS award with Prof. Peter E. Rossi of UCLA.
Prof. Ernesto Dal Bó and Assoc. Prof. Frederico Finan win best paper award
The award was given to the best paper of the annual SIOE conference, held June 27-29 in Stockholm, Sweden. The paper, “Economic Losers and Political Winners: Sweden’s Radical Right,” is available here.
The award was named for Nobel Laureate and Berkeley Haas Prof. Emeritus Oliver Williamson.
Giovanni Compiani just finished his first year as an assistant professor in the Haas Marketing Group, straight from a PhD in economics at Yale University. He’s taught marketing analytics to undergrads and PhD students. And as one on the first-round recipients of a Berkeley Blockchain Initiative research grant, he conducted research quantifying the massive energy consumption by cryptocurrency mining operations,
Compiani says he loves to come to work every day, as he feels comfortable as a gay faculty member here, something he might not have imagined growing up in a Catholic family in Bologna, Italy.
Where did you grow up, and what was it like?
I grew up in Italy, so it’s a Catholic country and I have a Catholic family. Homosexuality was not a topic that was ever discussed. We only had a law that legalizes same-sex unions in Italy about three years ago, and it’s still not called marriage. Growing up, it wasn’t necessarily easy, and I came out fairly late.
When did you first realize you were gay?
I would say it was probably in high school, and even more so in college, but I was a pretty late bloomer. I was very focused on academics, and I don’t look back on that with regret. I am here because I worked really hard. But I really focused on academics partly because I didn’t want to think too much about relationships. It was clearly something that was uncomfortable for me at the time. Then, when I had a little bit more perspective, I was finally ready to take a step back and say, let’s talk about the elephant in the room.
When did you come out?
I waited until I was very comfortable and I was really ready for it, and I ended up having a very positive experience. It wasn’t until grad school at Yale where it felt a little bit easier. I had so many doubts and fears but then I got so much positive support and love from the people around me. My family and my friends have all been super-supportive. Yale is a very liberal place, and my classmates and everyone else were great, but New Haven, Connecticut, is also a small town. Most people end up going to New York to date. That’s where I met my boyfriend, shortly after I came out. He just moved out to Berkeley last week. He’s a doctor, so he was finishing up his residency in Connecticut, and he’ll be starting at Kaiser Oakland in a couple of weeks. It’s my first time actually living with a partner, so it’s all come together.
What’s has been your experience so far on the faculty at Haas?
I arrived essentially one year ago today, and this is my first job, so I don’t really have a comparison. But I will say it’s been incredibly positive. I’m not part of any kind of organization within Haas, but there are other gay faculty members here and of course many on campus. It definitely helps to have examples right here of people who are successful and well-integrated into the community. Just the fact that there’s a normalcy to being gay here has been the most helpful thing. We’re all colleagues, and some happen to be straight and some happen to be gay, but that doesn’t create two different camps. It feels like a place where I want to go to work in the morning, which is, for me, the mark of a good workplace.
It’s also hard to beat Berkeley and the Bay Area in terms of the environment, and San Francisco with its history. I mean not only because of the queer community, but also things like the Free Speech Movement. This has been the epicenter of a lot of movements that have helped us get us to where we are now, and you have a sense that certain rights are really valued here. Even just getting emails from the dean or from campus, whenever there’s some sort of an incident, makes a difference. Those small things matter because it creates an environment where you feel that you’re taken care of and valued.
Do you feel like Italy has changed a lot since you were growing up, and do you feel comfortable there now?
Yes, as evidenced by the fact that I have a Catholic family, and they were ok with me being gay. They’re actually very happy for me. I’m from Bologna, which is Northeast of Florence. I think of Bologna a little bit as the Berkeley of Italy. It’s very left wing, and there is an accepting kind of culture. I just came back from there and it was a very good experience. But unfortunately, Italy is very similar to the U.S, in terms of what’s happening politically. One of the main parties governing right now is quite right wing and xenophobic. It seems like the goal is to take the country back to the past, which implies all sorts of things for women, for people of color, and for gay people. It’s a past that clearly benefited only a fraction of a population. I do think it’s up to us to stand up and say we’re not okay with that. Right now, I see that more from the outside since I’m not affected by it in the same way as if I were living there, but we have many of the same issues here with Trump. It does feel like a wake-up call. We are so polarized and I think people need to start coming together and find any common ground with those who are perceived as different. But sometimes I feel that the left also seems just as tribal as the right.
Do you feel like being gay gives you a different perspective in the classroom, in terms of how you work with your student and how you run your classes?
I would say so. To a certain extent, when you belong to any minority group, I think it’s easier to relate to people’s concerns and to be sympathetic. There’s always a bit of a hierarchy between students and professors, and I think that being as a member of a minority group helps you relate more to people across hierarchies. I’m hoping it can make my teaching more effective, and also make my interactions with students more welcoming. I haven’t had any specific interactions with students on the topic of being gay, but if there are students who want to reach out and I can help, that’s definitely something I’m open to.
Can’t stop checking your phone, even when you’re not expecting any important messages? Blame your brain.
A new study by researchers at UC Berkeley’s Haas School of Business has found that information acts on the brain’s dopamine-producing reward system in the same way as money or food.
“To the brain, information is its own reward, above and beyond whether it’s useful,” says Assoc. Prof. Ming Hsu, a neuroeconomist whose research employs functional magnetic imaging (fMRI), psychological theory, economic modeling, and machine learning. “And just as our brains like empty calories from junk food, they can overvalue information that makes us feel good but may not be useful—what some may call idle curiosity.”
The paper, “Common neural code for reward and information value,” was published this month by the Proceedings of the National Academy of Sciences. Authored by Hsu and graduate student Kenji Kobayashi, now a post-doctoral researcher at the University of Pennsylvania, it demonstrates that the brain converts information into the same common scale as it does for money. It also lays the groundwork for unraveling the neuroscience behind how we consume information—and perhaps even digital addiction.
“We were able to demonstrate for the first time the existence of a common neural code for information and money, which opens the door to a number of exciting questions about how people consume, and sometimes over-consume, information,” Hsu says.
Rooted in the study of curiosity
The paper is rooted in the study of curiosity and what it looks like inside the brain. While economists have tended to view curiosity as a means to an end, valuable when it can help us get information to gain an edge in making decisions, psychologists have long seen curiosity as an innate motivation that can spur actions by itself. For example, sports fans might check the odds on a game even if they have no intention of ever betting.
Sometimes, we want to know something, just to know.
“Our study tried to answer two questions. First, can we reconcile the economic and psychological views of curiosity, or why do people seek information? Second, what does curiosity look like inside the brain?” Hsu says.
The neuroscience of curiosity
To understand more about the neuroscience of curiosity, the researchers scanned the brains of people while they played a gambling game. Each participant was presented with a series of lotteries and needed to decide how much they were willing to pay to find out more about the odds of winning. In some lotteries, the information was valuable—for example, when what seemed like a longshot was revealed to be a sure thing. In other cases, the information wasn’t worth much, such as when little was at stake.
For the most part, the study subjects made rational choices based on the economic value of the information (how much money it could help them win). But that didn’t explain all their choices: People tended to over-value information in general, and particularly in higher-valued lotteries. It appeared that the higher stakes increased people’s curiosity in the information, even when the information had no effect on their decisions whether to play.
The researchers determined that this behavior could only be explained by a model that captured both economic and psychological motives for seeking information. People acquired information based not only on its actual benefit, but also on the anticipation of its benefit, whether or not it had use.
Hsu says that’s akin to wanting to know whether we received a great job offer, even if we have no intention of taking it. “Anticipation serves to amplify how good or bad something seems, and the anticipation of a more pleasurable reward makes the information appear even more valuable,” he says.
Common neural code for information and money
How does the brain respond to information? Analyzing the fMRI scans, the researchers found that the information about the games’ odds activated the regions of the brain specifically known to be involved in valuation (the striatum and ventromedial prefrontal cortex or VMPFC), which are the same dopamine-producing reward areas activated by food, money, and many drugs. This was the case whether the information was useful, and changed the person’s original decision, or not.
Next, the researchers were able to determine that the brain uses the same neural code for information about the lottery odds as it does for money by using a machine learning technique (called support vector regression). That allowed them to look at the neural code for how the brain responds to varying amounts of money, and then ask if the same code can be used to predict how much a person will pay for information. It can.
In other words, just as we can convert such disparate things as a painting, a steak dinner, and a vacation into a dollar value, the brain converts curiosity about information into the same common code it uses for concrete rewards like money, Hsu says.
“We can look into the brain and tell how much someone wants a piece of information, and then translate that brain activity into monetary amounts,” he says.
Raising questions about digital addiction
While the research does not directly address overconsumption of digital information, the fact that information engages the brain’s reward system is a necessary condition for the addiction cycle, he says. And it explains why we find those alerts saying we’ve been tagged in a photo so irresistible.
“The way our brains respond to the anticipation of a pleasurable reward is an important reason why people are susceptible to clickbait,” he says. “Just like junk food, this might be a situation where previously adaptive mechanisms get exploited now that we have unprecedented access to novel curiosities.”
Berkeley Haas research finds there may be a dark side to the rise of “alternative data” in capital markets
While Assoc. Prof. Panos Patatoukas was discussing Walmart in his Financial Information Analysis course last year, a student brought up the story of how company founder Sam Walton used to count cars in store parking lots to gauge how sales were going.
Patatoukas knew that sophisticated investors had begun doing exactly that on a large-scale basis by analyzing satellite images of retailers’ parking lots, and he began to wonder just how much of an edge it was giving them. So he called up the company that pioneered satellite-image car counting and pitched the CEO on the idea of letting an academic analyze the data. With the help of funding from the Fisher Center for Business Analytics, he landed 4.8 million images of parking lots at 67,000 individual stores across the U.S. owned by 44 major retailers, including Walmart.
The resulting analysis by Patatoukas and Assoc. Prof. Zsolt Katona—the first to quantify in detail the advantages of trading based on satellite imagery of parking lot traffic—found that the strategy can indeed deliver a significant boost for investors savvy enough to exploit it. Traders can accurately anticipate earnings news based on parking lot volume and earn significantly more than a typical benchmark return.
“The informational advantage yields 4% to 5% in the three days around quarterly earnings announcements, which is a significant return over such short window,” Patatoukas says. “If you annualize it, the number is staggering.”
The researchers also found that although this type of satellite data has been commercially available since 2011, the information hasn’t spread beyond a select few large investors, mostly hedge funds. That’s led to a consistently profitable strategy for hedge funds at the expense of individual investors, Patatoukas says: In particular, investors with access to satellite imagery data can get ahead of the rest of the market and target retailers with bad news for the quarter. This investment edge allows them to bet against those retailers by short selling their stock, even as individual investors are still buying.
“What we found is that it’s a gain for large sophisticated investors who can afford the substantial costs of acquiring and processing big alternative data at the expense of Main Street investors,” Patatoukas said. “If it was just a transfer of wealth between hedge funds, that would be a different story, but it’s small individual investors who tend to be on the other side of the trade.”
His working paper—co-authored by Marcus Painter at the University of Kentucky and Berkeley Haas doctoral student Jieyin Zeng—raises questions about individual investor protections in an age of new “alternative data” sources. Even as technology has made trading more accessible to the masses, the rise of big data is creating so-called alternative data that only those with superior resources are tapping into.
The “dark side” of big data
Skilled investors have always competed for an information edge that allows them to outperform the market by even fractions of a percentage point—that’s how Wall Street operates. Until recently, however, those traders had access to the same reports, earnings calls, SEC filings, and other public sources of information as everyone else. Trading on material non-public information, after all, is against the law, and the SEC makes detection and prosecution of insider trading one of its top enforcement priorities.
But technology is increasingly blurring the boundaries between public and private information, creating data opportunities that are legal, but are expensive and often require special expertise to access.
“Technology was supposed to level the playing field, but what I see is the fence separating sophisticated and unsophisticated investors growing higher,” says Patatoukas, who is passionate about teaching his students to analyze public sources of financial information and finds the trend troubling. “That’s the dark side of big data. Our evidence suggests that unequal access to alternative data leaves individual investors outside the information loop.”
How to formulate a trading strategy from outer space
RS Metrics pioneered the analysis of satellite images of parking lots in 2011, with hedge funds as their primary customers. Other companies such as Orbital Insight have followed suit, obtaining images from satellite companies and processing them with both software and human analysts. Not only is the data expensive, but it takes substantial skill to analyze and combine with other information sources to yield results, Patatoukas says. “You have to have the right people, and those people tend to be expensive.”
Patatoukas’ paper lays out exactly how investors can formulate a trading strategy from outer space. Using images from RS metrics from 2011 to 2017 covering 44 major U.S. retailers, including Walmart, Target, Costco, and Whole Foods, the researchers confirmed that year-over-year changes in the number of cars in individual stores’ parking lots is a reliable predictor of quarterly sales—a widely used metric for retailers’ performance. The researchers later added in more images from competing firm Orbital Insight, which covers the same companies, and found that combining the two datasets allowed for even more accurate predictions, and an even more profitable strategy.
In fact, parking lot volume is such a reliable indicator of retail sales that it can be used to identify errors in analysts’ forecasts in the three-week period after stores’ quarterly earnings are in, but before they’re announced to the public. Using data from Markit, a service that tracks daily institutional lending activity, they found a boost in stock lending in the five days before earnings announcements. That’s an indication of “informed short selling activity,” targeting retailers with bad news for the quarter (the strategy works with long and short-sale positions, but the researchers found it is most profitable for short sales).
Meanwhile, drilling into data on trading by individual investors during the same period, they found that individuals are net buyers of the same retailers that the hedge funds are betting against. Main Street investors can’t piggyback on what the hedge funds are doing since the short-selling market is opaque: The general investment community can only see short-interest data twice per month, and only with a significant delay.
In terms of market reaction to earnings announcements, they found no difference between retailers covered by the satellite image companies and those that are not. Clearly, the parking lot intelligence is not increasing price discovery for the market overall, Patatoukas says.
“Over the last seven years it’s been a pretty profitable strategy for hedge funds, and the value of the parking lot signals hasn’t yet been competed away. Part of that has to do with the fact that access to satellite imagery data has been so exclusive,” he says. “Once uncertainty about the signals has been removed and it’s known that there’s value to be extracted, more investors will start using it and the advantage will be competed away.”
In that regard, Patatoukas says, the dissemination of the working paper itself will impact the market for satellite parking lot data in the short term, since it provides the first independent analysis showing whether—and how—trading from outer space works.
In the aftermath of the financial crisis, there has been increased regulatory interest in the role of informed trading and disclosure requirements to protect the fairness and integrity of capital markets. With this in mind, Patatoukas hopes that the paper will get the attention of the regulators. “In a market setting where the line separating public from material non-public information is getting blurrier, the question that regulators need to answer is: What is their role in terms of leveling the playing field for individual investors?”
While the value of the parking lot data will dissipate as technology improves and it becomes more accessible, investors will no doubt find new data sources that will yield insights once only available to company insiders. For example, investors may already be harvesting geolocation data from inside consumers’ pockets as they move around stores with their smartphones, Patatoukas says.
“This is just the tip of the iceberg,” Patatoukas says. “While so far the focus has been mostly on the bright side of big and alternative data, there might be a less auspicious side to the rise of such data in capital markets.”
In honor of Asian Pacific American Heritage Month, we’re featuring profiles and interviews with members of our Haas community.
Prof. Candi Yano‘s family immigration history is one of twists and tragic turns, from Japan to the U.S., and back and forth again.
Yano, who is wrapping up her term next month as the first Asian-American woman to serve as Associate Dean for Academic Affairs and chair of the Berkeley Haas faculty, is an international expert on supply chain management. After three years of helping to win faculty retention battles and countless hours serving colleagues needs big and small, she looks forward to returning to her dual academic role as the Gary & Sherron Kalbach Chair in Business Administration at Haas, and as a professor in the Department of Industrial Engineering & Operations Research.
In between writing her last few memos as faculty chair, Yano took the time to share her family’s fascinating—and heart wrenching—immigration story, as well as the circuitous route she took to discovering the focus of her life’s work via a copy machine at Stanford University.
Where did you grow up?
I grew up in a city called Gardena, immediately south of Los Angeles. When I was a kid, about half the population there was Japanese American. My high school was more diverse because of busing in the L.A. school district. There were lots of Hispanic students who were mostly local, and African-American students who were bused in from adjacent communities, as well as Asian and Caucasian students. It was interesting to leave home for the first time and realize the whole world wasn’t like that. I ended up at Stanford, and at that point only about 10% of the students were Asian American. It was eye-opening for me.
What was the history of Gardena, and how did it end up half Japanese American?
When my grandparents immigrated from Japan about a hundred years ago, people weren’t coming in big groups, and so they wanted to go to a place where they felt more comfortable. Many of them were young men and some of them were still in their late teens. It’s really amazing to think about them just getting on ships by themselves. That particular area, even though it’s heavily populated now, was mostly fields—lots of strawberries. My paternal grandfather came from a farming background. He came to California because he felt he had good job opportunities along the lines of what his family had done. My maternal grandfather immigrated a bit later, and I know less about his reasons for coming the the U.S.
When did your grandparents arrive?
It was around the late teens, maybe early 1920’s. Then in 1924, the U.S. government decided to cut off Asian immigration with the Asian Exclusion Act. I believe both of my grandfathers were here in the U.S. and they sent for their wives-to-be from Japan, because they all had arranged marriages back then. They came over and got married and started their families.
Did you know your grandparents growing up?
Yes, except my mother’s father, who was killed by the bomb in Hiroshima during the second World War.
Wow. How did that happen, if he had immigrated to the U.S. before the war?
After they had been sent to a relocation camp, my grandfather decided he didn’t want his family being locked up. There were two choices: Stay in the camp or go to Japan. So he decided to take them to Japan, which of course my mother probably didn’t like very much because she was born in the U.S. My grandfather had been a newspaper editor in California, and he picked up that line of work there as an editor at the big regional paper in Hiroshima, The Chugoku Shimbun. He was in the wrong place at the wrong time. My mother seems to have survived mostly unscathed because the family was living out in the burbs. Her mother raised the four kids alone after that. They all ended up coming back to the U.S. at different times. My mom came back at the age of 16. She had finished high school there, and then finished out high school again here.
That’s a heartbreaking story.
Yes, it really is. I had a chance to finally go to Hiroshima a couple of years ago. The Chugoku Shimbun newspaper is still in existence. I saw many panoramic pictures showing the buildings as they were after the bomb. It was heart wrenching to see that.
Did other members of your family who stayed in the U.S. have to go to the relocation camps?
All of them. My dad’s family was sent to a camp in Gila River, Arizona. They stayed there until they were released after the end of the war.
Did you grow up hearing stories about what happened during the war, or did they avoid talking about it?
I think it affected people differently depending on their age. My parents were both school-aged at the time, which meant that their parents were protecting them from the worst of it. It’s interesting that they don’t seem to have very negative feelings about what happened. But if you talk to people who are just 10 years older, who were adults at the time, they feel very differently. I think if my parents had been bitter they would have passed it on to me, but they weren’t. And in a sense, I consider myself lucky. I can be Japanese-American but not live with that sense of bitterness.
Did you learn much about Asian or Asian-American history in school?
Some, of course, but it was not covered very thoroughly. When I was in high school, most of the talk was about Russia and China. I did have a U.S. history class that required a term paper, and I wrote about the connections from Pearl Harbor to the Japanese surrender. I came to understand that one of the reasons why the second bomb was dropped on Nagasaki was because the U.S. didn’t understand that the Japanese were ready to surrender—but they wanted to retain their emperor, even though he was more of a symbol. The U.S. was being too stubborn about the whole emperor issue, because we don’t have emperors, we don’t have kings and queens in the United States. That was a cultural misunderstanding. Not understanding the roles of various people in government really led to some undesirable outcomes.
An especially tragic example of cultural misunderstanding.
Shifting gears, how did you decide on an academic career, and how did you choose operations as your field?
I took a rather circuitous route. I was studying a lot of math in high school but I was becoming disillusioned with it, so I tried psychology. But when I volunteered as a so-called research assistant for a PhD student, my job was babysitting the five-year-old research subjects. I didn’t really like that. I ended up taking courses on the quantitative end of economics, but meanwhile, I had this odd part-time job. The operations research department at Stanford allowed its PhD students to use the photocopy machine, but they charged a per-copy price plus sales tax. My job was to tally up all the copies and calculate the charges including sales tax, and get the bills sent to the PhD students. As a consequence, I got to know the operations research department chair, and he encouraged me to apply to that department. It was entirely random; I could have had a different part-time job. I did get my undergraduate degree in economics but I eventually did a master’s in operations research and then my PhD in industrial engineering.
Were you in the minority as a woman in that department at the time?
There were at least 25% women in my class, but I never really felt like a minority. Actually, I never really felt discriminated against as a woman throughout my graduate career. Not within the campus environment. There were fair number of Asian students at the time too.
How did you end up at Berkeley?
My first full-time job was at Bell Labs in New Jersey. I decided to take an industry job because I had no full-time work experience and I thought it would be helpful. But it was the wrong time to be there, because it was during the first break-up of the Bell system, transitioning from a monopoly to a competitive environment. The antitrust judge kept on changing his mind, so we never got to finish anything. I was there for 17 months and I don’t think I finished a single project. I had been thinking about going into academia anyway and I said, “I think it’s time to go.” I ended up on the faculty at the University of Michigan and I stayed for about 10 years. But my husband grew up in Berkeley and he decided to take a job out here, so I had to figure out whether I wanted a long-distance relationship. I was lucky enough to get National Science Foundation grant for women faculty to spend a year at another university, and I came to Berkeley as a visiting faculty member. Then I was then lucky enough to get a visiting position at Stanford for another year and have the time to think about it. And then I decided to come back to Berkeley.
You’re wrapping up next month after three years as chair of the Berkeley Haas faculty. How has that been?
Well, first let me tell you about the best part of it. The best part is that I’ve really gotten to know the other faculty in a way that would not have happened otherwise. We have over 80 faculty members and I don’t run into everybody on a regular basis, but I’ve had an opportunity to get to know some really interesting people. I’ve tried to do what I could to help with whatever they they needed. The administrative work has been busy but not very intellectually stimulating.
Do you think this experience will influence your work going forward?
I think there are people I’ve met who I may be interested in collaborating with, but I haven’t had much time to think about it. Right now, I would just like to finish my last 10 memos (this job entails writing a lot of memos) and get back to being a normal person again. I need to do research for my own sanity.
What do you like best about research?
From when I was very young, I got intellectually bored easily, and I need to have something that keeps my mind going. I like finding new things, working on problems that other people have not tried to tackle before. I also like teaching, and I’ve only taught one class in the last four years, so I’m really looking forward to that.
What do you love about teaching?
I really like imparting knowledge and skills to students to allow them to be better professionals when they graduate. I especially like the undergrads. They’re more like sponges. The MBA students are more focused on what it is they want. I have a funny story about an MBA student in my supply chain management class. He took a job at what was SanDisk, now merged into Western Digital. He told me after his interview that virtually every topic I taught in the class helped him to answer their interview questions. He said it was so easy for him to get the job. That feels good. I get little notes from students saying they were able to get their job at this consulting firm or that company because of something I taught them.
Do you feel like being Asian American gives you a different perspective in the classroom?
Obviously I bring the heritage with me, but I have also spent a fair amount of time in Asia, so I think I have a better understanding of the culture and values that the Asian students bring with them. It’s not unusual for Asian students, especially those whose parents are immigrants, to be caught between two cultures. A lot of times I can help them work through the challenge of finding their own career trajectory that might not have been what their parents had planned for them. Also, in my classes I try to help the students who are quieter. In some Asian cultures you don’t speak unless you’re spoken to. I try to draw them out. Because I’m Asian, they can look at me and they say, “She does understand.”
Do you wish there was better understanding of Asian culture in the U.S.?
We are in an environment nationally that is not helping people to be more inclusive. It feels like a divisive time in our world. But let me say something positive: I think here on campus it’s better than in most places. We can talk openly, and I think that helps. But in many industry sectors, the percentages of women and of minorities of all types are far lower than they should be. I really hope that people start to understand each other a little bit better and try to bridge those gaps.
In honor of Asian Pacific American Heritage Month, we’re featuring profiles and interviews with members of our Haas community.
Prof. Xiao-Jun Zhang moved to the U.S. for love, and stayed because he built a family and a career here.
Since he joined the Haas Accounting Group in 1998, Zhang has become a much-loved professor, opening the minds of generations of students to accounting—even those who start out thinking it’s boring. He twice won the Cheit Award for Excellence in Teaching in the Evening & Weekend MBA program, and last year he made Poets & Quants’ list of the favorite professors of executive MBA students.
Zhang shared how his his life has been a “fate-guided series of decisions,” and how his cultural perspective influences the way he runs his classes in a very intentional way.
Where were you born and where did you grow up?
I was born and raised in Beijing, China. I went to primary school, high school, and college all in Beijing.
When did you move to the U.S., and why?
I moved to the U.S. in 1992 and the reason was simple: My wife—who was then my girlfriend—transferred to Mount Holyoke College in Massachusetts, so I decided to follow her to the U.S.
Did you think you’d stay here?
I was young then and didn’t think too much about my long-term plans, including whether to stay in the U.S. or not after graduation. The end result of staying here was more of a fate-guided series of decisions, driven by family more than a deliberate career path.
How did you come to Berkeley?
At the time, I was choosing between several schools—including Berkeley, Chicago, Yale, and Duke. What made Berkeley stand out was my research area of financial statement analysis. My advisor, James Ohlson, had worked here, and my frequent co-author, Steve Penman, was here at that time. From the research collaboration perspective, Berkeley was a natural fit. Also, my wife really wanted to live in the Bay Area.
Was there anything about Berkeley’s culture that attracted you?
If you look around the country, I would characterize Berkeley as of one of the most open-minded places. There’s a strong emphasis on equality, on judging people based on what he or she can contribute, rather than more superficial aspects. For people of Asian origin, feeling that sense of fairness is important. I would choose to work among colleagues who share that same sense of equality and fairness.
Having grown up in China, do you feel like you have a different perspective—as an academic and a teacher—than your American-born colleagues?
I would say so. The way you grew up shapes you consciously and unconsciously in so many ways. I’ll give you an example. In the classroom, I find it easier to understand certain student behaviors, especially with students from Asian countries. In the classroom in China, all we were supposed to do was take notes and memorize what we were told. You’re not supposed to ask questions. I suppose there’s similar cultures in Japan, Korea, and other Asian countries. When you teach graduate classes at Berkeley, you notice students from those cultures tend to be more reserved. I tend to be understanding, and when I design my class, I try to create a very relaxing environment without a lot of pressure to participate. It’s really rewarding when you see these students gradually warm up, and at the end of the semester they are as active as the others.
So do you put less emphasis on participation in their grades?
I put as much emphasis on participation, but I redefine it. I don’t count the number of questions they ask. To me, whether a student has been following the class is the most important thing. I tell the students that, after so many years of teaching, I know just by looking at your eyes whether you’re following the class. Once you take that pressure off, students start to participate in a natural way, rather than trying to think of a question just to ask a question.
That’s so interesting. There’s a lot of discussion around Haas and at business schools about inclusion. People have noticed that men often dominate classroom conversations and are working on changing that culture. Do you find that women tend to speak up more in your classes because of the atmosphere you create?
I don’t pay attention to whether it’s a man versus a woman, but I do tell students, “You may notice sometimes you raise your hand but you don’t get called on. Don’t take it personally, but I want to give priority to whoever hasn’t spoken so far.” Most of the students have no problem with that. Once you tell them, “Your role is just keep raising your hand,” they are likely to continue doing it but they can relax.
You’re a well-loved teacher—you’ve won the Cheit Award twice, and last year you were on Poets & Quants list of favorite exec MBA students. What do you like about teaching accounting?
I like helping them realize that accounting is not just a bunch of rules. Accounting is a way of thinking, in the sense that it’s looking at a business from the financial perspective. You can have all these fancy business plans, but in the end, you’re going to be measured by how the financial aspect works out. When students realize they need to learn this to operate in real life they get excited. Most rewarding is when you see the light bulb go on, and they see that accounting is not boring and it can actually be exciting. Then you just leave the rest to them. They will learn it all by themselves. At the end of the day, they give you credit for what they’ve learned, and they start liking you.
So from that perspective, you don’t have to teach them much beyond the first week?
In some sense yes. Once you help them realize what accounting really is, they will do all the work and teach themselves.
Can you share an example of your recent research?
In finance and accounting there is the book-to-market ratio phenomenon. Basically, people find that the book value (or accounting value) divided by the market capitalization somehow correlates with future stock returns. People got very excited about this idea because it seems they could make money off it. From the academic perspective, the question is why? I think part of the reason has to do with accounting, in the sense that the book value tends to reflect a stock’s downside risk due to the conservatism-bias in accounting. As a result, the book-to-market ratio reflects a stock’s upside potential relative to its downside risk. Another ingredient to this phenomenon is investors’ preference for “positive skewness” in stock returns: In other words, when you make an investment and receive huge return from it, you get a disproportionately high degree of satisfaction. Now you can brag about it at dinner parties, for instance. Maybe the other nine of your ten stocks don’t do well, but that doesn’t seem matter as much. Putting these two ingredients together, we start to see why investors like stocks with a low probability of huge upside potential, which leads them to prefer the so-called growth stocks.
That sounds like almost like a behavioral finance perspective. Is it rational to put faith in a low probability of a high return over a more certain, smaller return?
I would say yes, because these investors get significant happiness from this one big return. The same reasoning underlies people’s preference for gambling. Going after things that make you happy is rational. Trying to understand human behavior and what really gives humans happiness—or what they call in economics “utility”—is quite complicated and quite fascinating to dive into.
Do ever think you’d move back to China?
I don’t see any reason why I’d want to go somewhere else. I couldn’t ask for a better academic environment than Berkeley, in terms of freedom of thinking. Also my family loves living here. Your home is where your family is. I go to Beijing from time to time, but the Beijing of today is completely different from the city I grew up in. The hometown I grew up in will just be in my memory forever.
For hundreds of years, a tiny group of négociants or wine brokers have determined the price that distributors, importers, and eventually consumers will pay for France’s top wines. These prices are based on the barrel scores of elite tasters, along with the brokers’ own expertise—and a generous splash of guesswork about the market.
That tradition-bound system is getting a data-driven shakeup this month with the debut of a new pricing algorithm on London’s Liv-ex fine wine market.
The algorithm was developed by Burak Kazaz, a Berkeley Haas visiting professor (and the Steven R. Becker professor at Syracuse University’s Whitman School of Management), and Hakan Hekimoğlu of Rensselaer Polytechnic Institute. They established “realistic prices” for the 2018 en primeur (or wine futures) campaign—wines from last year’s vintage that are aging in the barrel and will hit shops and restaurants next year.
“This is the most important progression in making a transparent market for wine futures since the négociant system was established more than 300 years ago,” says Kazaz, who pioneered the field of wine analytics. “The realistic pricing will tell buyers and consumers whether a wine is underpriced or overpriced, leading to more effective and transparent purchase decisions. It will also tell winemakers how they can determine their own selling price to négociants.”
The algorithm incorporates temperatures, precipitation, market conditions based on the Liv-ex 100 index of top wines, and price trends based on barrel scores for wines from Bordeaux’s leading chateaus determined by tasting experts Lisa Perrotti-Brown (of The Wine Advocate) and James Suckling (formerly of The Wine Spectator). These influential tasters sample young wines a year after they are barreled, and one year before they are released to the market, scoring them on a 100-point scale.
The “realistic pricing” algorithm allows distributors and consumers to translate a Bordeaux’s score into a dollar amount, getting a clear idea of whether they’re getting a good deal or overpaying. For the 2018 vintage, the algorithm predicts a 3% price increase per additional point compared with the 2017 vintage.
The algorithmic pricing system is expected to shake up the wine futures market, but also to make it less risky, since investors will have a data-driven price for the first time and winemakers will know what price to set for their young wines. Kazaz and Hekimoğlu’s study was recently featured in Robert Parker’s influential Wine Advocate.
While the wine futures market doesn’t exist in the U.S., where individual wineries tend to set their prices, Kazaz is exploring the idea of bringing data driven-pricing to the U.S. market.
Kazaz teaches operations and supply chain management in the Berkeley Haas MBA program.