Prof. Malmendier Honored with Prestigious Grant

For Ulrike Malmendier, the accolades are piling up. The Haas finance professor’s groundbreaking insights into how ego and other personality traits of business leaders influence corporate strategies have catapulted her to the forefront of modern economics.
Her work also caught the attention of the German government, which has awarded Malmendier a prestigious research grant through a foundation it set up to promote academic cooperation among top scholars and scientists from around the world. Malmendier, the Edward J. and Mollie Arnold Professor of Finance, is one of about 20 top researchers to be honored this year with the grant from the Alexander von Humboldt Foundation.

As part of the grant, which is officially known as the Friedrich Wilhelm Bessel Research Award and comes with a cash award of 45,000 euros, Malmendier is spending the current academic year with other grant recipients at the University of Bonn.

She is working closely with Hendrik Hakenes, the director of the University of Bonn’s Institute for Financial Economics and Statistics. Hakenes described Malmendier, whom he nominated for the award, as a “leading researcher” in the field of corporate finance and behavioral economics.

In nearly 14 years of teaching and research, Malmendier has emerged as a pioneer in the field of behavioral economics, which is the study of how emotional biases and character traits affect economic decision-making. While behavioral economics has mostly focused on how personality influences everyday investors and consumers, Malmendier has zeroed in on how these biases affect corporate decisions, stock prices, and markets in general.

Dean Rich Lyons offered high praise for Malmendier’s unique contributions to behavioral economics. “Ulrike has brought psychology to corporate finance and nobody had really done that before,” he says. He noted, too, that Malmendier joins a long list of Berkeley scholars who have influenced what is known about the role of personality in economics. They include Nobel laureates George Akerlof and Daniel Kahneman, and Haas Prof. Terry Odean.

Studies of CEOs, entrepreneurship

In her work on human behavior in corporate finance, Malmendier has made a number of key discoveries. For example, she has studied the role hubris in the C-suite plays when it comes to corporate strategy. Working with other researchers, Malmendier discovered that CEOs who build up big personal stakes in their companies (by not diversifying) are more likely to involve their companies in an unsuccessful merger or acquisition – an expression of their overly optimistic beliefs in the returns they will generate in their companies. She’s also shown that the job performance of celebrated CEOs tends to deteriorate when they’re in the spotlight — even as their compensation spikes.

Malmendier has also studied the characteristics of entrepreneurs. A study she co-authored with Josh Lerner of Harvard Business School found that having close acquaintances with entrepreneurs does not spur people to become entrepreneurs themselves. Why? Because experienced entrepreneurs are better able to steer would-be startup founders away from bad ideas.

Her contributions to behavioral economics have extended to consumers as well. Malmendier often collaborates with her husband, Stefano DellaVigna, a professor in Berkeley’s Department of Economics and, jointly, at the Haas School of Business. Together they have analyzed how fitness centers lure people into overpaying for gym memberships. They’ve also studied the motives behind generosity and found, among other things, that people in door-to-door fundraisers are influenced more by social pressure than they are by the desire to give.

These and other innovative insights have garnered Malmendier worldwide acclaim. In 2013, the American Finance Association honored her with its Fischer Black Prize. The biennial award honors the top finance scholar under the age of 40.

In addition to her growing body of research, Malmendier is a frequent speaker; she’s participated at the World Economic Forum in Davos and, just this year, has given a dozen keynote addresses, including one at the Economic Science Association’s meeting in Europe earlier this year. She’s also received numerous grants.

Infectious enthusiasm

In the fall, Malmendier will return to Haas. She’ll also resume her position as a professor in Berkeley’s Department of Economics and will teach her corporate finance classes in the EWMBA and PhD programs, for which she was honored with the campus-wide Distinguished Teaching Award last year.

For Malmendier, the Bessel award marks a coming home of sorts. She was born in Cologne and earned a double degree in law and economics from the University of Bonn. Faced with a choice between the two disciplines, Malmendier chose economics. After her PhD in law from Bonn in 2000, she graduated a PhD from Harvard University in 2002.  After stints at Stanford, Princeton,  and the University of Chicago, she started teaching in Berkeley’s Department of Economics in 2006. She accepted a joint appointment with Haas in 2010.

Dean Lyons said Malmendier stands out for reasons other than her research. Specifically, he cited her passion for ideas and the way her enthusiasm infects everyone around her. “She has a very high cognitive clock speed, and you feel empowered when you’re around her,” he says. “I think of this metaphor of ‘drinking from the fire hose.’ She’s one of those people whose ideas make you think, ‘Wow, this is really fun!’”