Meet the faculty: Top-tier researchers join Berkeley Haas for 2024-25

August 20, 2024| by Laura Counts

A collage shows headshots of a man and a women side-by-side: Kelsey Jack and James Sallee. — Associate Professor Kelsey Jack and Professor James Sallee joined the faculty on July 1.

Two top-tier researchers whose work addresses pressing environmental, development, and public policy questions have joined the ranks of Berkeley Haas professors this semester. Two additional professors will join the faculty in January 2025.

“Our new faculty hires this year are leading researchers and teachers who will help to solidify our emphasis on sustainability,” says Interim Dean Jenny Chatman. “We’re so thrilled they are bringing their brilliance to Haas—and to the greater UC Berkeley community.”

“Our new faculty hires this year are leading researchers and teachers who will help to solidify our emphasis on sustainability. We’re so thrilled they are bringing their brilliance to Haas—and to the greater UC Berkeley community.” —Interim Dean Jenny Chatman

Associate Professor Kelsey Jack, whose work lies at the intersection of environmental and development economics, comes to Haas from the University of California, Santa Barbara, where she was an associate professor at the Bren School of Environmental Science and Management and the Department of Economics.

Professor James Sallee is already a familiar face around campus. As a faculty member in the Department of Agricultural and Resource Economics at UC Berkeley since 2015 and a faculty affiliate at the Energy Institute at Haas since 2016, his research focuses on energy, the environment, climate, and public economics, with a focus on public policy.

In January, Berkeley Haas will welcome Economist Martin Beraja of MIT will join the Economic Analysis and Policy group as an assistant professor, and Dr. David Chan, a health economist and MD now at Stanford University, will join the Economic Analysis and Policy group as a professor. Chan will serve as the new faculty director for the Robinson Life Science, Business, and Entrepreneurship Program.

Associate Professor Kelsey Jack, Sheth Sustainable Business Chancellor’s Chair

Pronouns: she/her
Hometown: Van Zandt, Washington
Academic Group: Business and Public Policy

Education:

PhD, Public Policy, Harvard University
AB, Public and International Affairs, Princeton University

Research focus: Environmental and development economics

Introduction: I am joining Haas from the University of California, Santa Barbara, where I was an associate professor at the Bren School of Environmental Science and Management and the Department of Economics. Prior to that, I was an associate professor at Tufts University. I also spent a year at UC Berkeley in 2013-14 as visiting faculty in the Department of Agricultural and Resource Economics.

I study questions at the intersection of environmental and development economics. In particular, I try to understand how low income households use natural resources—land, water, energy—and the ways that policy can help align short-run economic needs with longer-run environmental and health concerns. I’ve thought about this topic for a long time, since a family trip to Madagascar after my freshman year in high school; it’s remained the problem that interests me most in the world. For example, at the moment, I’m studying climate adaptation in Niger and clean energy adoption in Ghana. I have other projects underway in India, South Africa, Malawi and Ivory Coast.

“I try to understand how low income households use natural resources—land, water, energy—and the ways that policy can help align short-run economic needs with longer-run environmental and health concerns. I’ve thought about this topic for a long time, since a family trip to Madagascar after my freshman year in high school.” —Associate Professor Kelsey Jack

Teaching: I am creating a new course, tentatively titled “Sustainable Markets: Profit, Policy, and Corporate Responsibility”

Why you decided to join Berkeley Haas: Amazing colleagues!

Fun (nonacademic) fact about you: I spent two years after college living in Vientiane, Lao People’s Democratic Republic (Laos) working for an environmental organization and figuring out what to do with my life.

Professor James Sallee

Pronouns: he/him
Hometown: Bloomington, Illinois
Academic Group: Economic Analysis and Policy

Education:

PhD, Economics, University of Michigan
BA, Economics and Political Science, Macalester College

Research focus: Energy, the environment, climate, and public economics, with a focus on public policy

Introduction: I always knew that I wanted to be an academic, to research, write and teach. So I went more or less straight through to my PhD after college. I fell in love with economics towards the end of college because I saw it as a versatile tool that could be used to study a variety of important problems. In graduate school, I was studying tax policy, partly because it interested me and partly because that was where I found the best mentorship. But, I fell almost by accident into a dissertation topic that studied tax subsidies for hybrid cars. As I learned more about environmental issues, I became more and more interested, and my career has ever since drifted more and more towards the biggest environmental problems of the day. I now study topics ranging from retail electricity pricing reforms in California to the design of public policies to ensure equity in the energy transition. For the last several years, I’ve worked with collaborators in the Rausser College of Natural Resources and at Haas to launch a brand new master’s program called the Master of Climate Solutions, which will be an interdisciplinary professional program that equips students to help become change agents for the climate across industries and sectors.

“As I learned more about environmental issues, I became more and more interested, and my career has ever since drifted more and more towards the biggest environmental problems of the day. I now study topics ranging from retail electricity pricing reforms in California to the design of public policies to ensure equity in the energy transition.” —Professor James Sallee

Class(es) you’ll teach: Core microeconomics

Why you decided to join Berkeley Haas: I have always loved professional education because it feels impactful to help equip students who are going to jump back into leadership roles right after school. I like the back-and-forth with students who bring not just intellectual curiosity, but also a wealth of experience to the classroom dialogue. I like that professional students demand that material is relevant and practical. I was also drawn to the opportunity to push Haas as the leader in climate and sustainability. My research and policy attention has moved more and more towards the climate challenge in recent years, and I believe that business can and must drive progress on climate.

Fun (non-academic) fact about you: I spent most of my money and all of my energy outside of work taking care of my three daughters. I love to travel and enjoy cooking.

Professional Faculty

In addition to the new members of the ladder faculty, nine new lecturers will be teaching courses this fall. Several others will join in spring (with additions exepected mid-year). They include:

Helene York, Responsible Business
Kate Gordon, Sustainable & Impact Finance
Rebekah Butler, Business & Public Policy
Alex Luce, Economic Analysis & Policy
Ana Martinez, Economic Analysis & Policy
Miyoko Schinner, Sustainable & Impact Finance
Jules Maltz, Entrepreneurship & Innovation
Richard Wuebker, Finance
Asiff Hijiri, Finance/Entrepreneurship & Innovation
queen jaks, Management of Organizations (spring 2025)
Bianca Datta, Sustainable & Impact Finance (spring 2025)

New center aims to create healthcare innovation research-to-impact pipeline

March 6, 2024|By Rachel Leven

The Center for Healthcare Marketplace Innovation aims to shape the future of AI in healthcare through groundbreaking economic research, data partnerships and more.

Associate Professor Jonathan Kolstad will serve as faculty director of the new center (Photo: Copyright Noah Berger / 2023).

UC Berkeley experts are developing a trailblazing infrastructure to translate cutting-edge AI and behavioral economics healthcare research into powerful real-world advances in patient outcomes and drastically reduced medical costs.

The Center for Healthcare Marketplace Innovation, announced today by the College of Computing, Data Science, and Society and the Haas School of Business, will act as a force multiplier for top-tier technological innovation and economic insights. Developing and using the research on healthcare innovation incentives will lead to the creation and deployment of interventions that meaningfully improve public health.

Artificial intelligence (AI) is widely expected to transform healthcare. The new Berkeley center aims to play an essential role in ensuring those innovations benefit the public. AI tools could enhance care quality by, for example, helping triage patients in emergency rooms, diagnosing diseases and coaching clinicians. These technologies can also help reduce the 15% to 30% of health care spending that goes towards administrative functions each year, said Jonathan Kolstad, the center’s faculty director. That means up to $250 billion less in annual spending and more time focused on improving patient care. Still, this moment also carries risk.

“AI is going to be central to healthcare delivery in 10, 15 years from now,” said Kolstad, a professor of economic analysis and policy at Berkeley’s business school. “We’re at this inflection point. By understanding the technology, the systemic incentives and the human abilities in the healthcare system, we have a tremendous opportunity to help shape those dynamics.”

“We’re at this inflection point. By understanding the technology, the systemic incentives and the human abilities in the healthcare system, we have a tremendous opportunity to help shape those dynamics.” —Professor Jonathan Kolstad

“I think it matters whether and how those tools get built to actually enhance care delivery and help patients, and whether they are built in equitable, ethical ways because they’re started in places like Berkeley,” he said.

The center’s faculty are the right experts to lead this charge. Kolstad and faculty affiliates like Ziad Obermeyer are already award-winning academics in their respective fields, founders of healthcare innovation startups, and experts called upon by California and federal leaders to inform healthcare policies and regulations. Obermeyer is an associate professor at Berkeley’s School of Public Health.

This expertise enables them to build unique research and data resources and foster interdisciplinary incubation and industry and policy collaborations. Berkeley’s all-around excellence amplifies their potential impact. With connections to ambitious initiatives like the UC San Francisco-UC Berkeley Joint Program in Computational Precision Health and the open platforms initiative recently launched by CDSS, the new center can support other leading thinkers in moving their research from breakthrough papers into impact for public good.

“Berkeley’s leadership in disciplines across computing, public health and economics and dedication to making real-world impacts make it the obvious home for this exciting initiative,” said Jennifer Chayes, dean of the College of Computing, Data Science, and Society. “The Center for Healthcare Marketplace Innovation will enable those at the intersection of healthcare economics and policy to join together with clinical and computing researchers to redefine success in healthcare outcomes.”

“Harnessing AI to make our healthcare system work for people and ensure patients get better care requires a truly interdisciplinary approach,” said Ann Harrison, dean of the Haas School of Business. “I am very excited to see some of Berkeley’s great minds and cutting-edge resources come together at the new Center for Healthcare Marketplace Innovation.”

The center’s foundational development was made possible through a generous philanthropic donation by an anonymous thought partner. CHMI will be housed within the Institute for Business Innovation at Berkeley Haas.

A ‘bench-to-product’ runway

As society shifts to a new era of healthcare where AI plays a larger role, understanding human decision-making will remain central to discovering and applying useful solutions. The center aims to connect expertise in behavioral economics with the advanced research and development being executed at Berkeley to help develop healthcare solutions that people and companies want and will harness.

The center will focus on three pillars: conducting research to advance the science of innovation incentives in healthcare; encouraging interdisciplinary collaboration on projects and solutions; and partnering with healthcare providers, insurers, government agencies and others to test and refine the novel interventions.

Kolstad hopes this will be the “bench-to-product runway” that the increasingly technical and interdisciplinary AI, computer science and behavioral science need to be translated from research into impact.

“There’s a lot of really cool computational stuff happening, but it’s being built with very little understanding of the actual function of the healthcare system – of the complicated incentives of what it would take to have an algorithm, a prediction model, a solution be deployed to really change either healthcare outcomes or costs,” said Kolstad. “This kind of center that works to bridge these mechanisms can be very, very influential.”

“We want to take all of this intense energy and interest in AI and health and make sure that’s turning into benefits for patients and for the healthcare system.” —Ziad Obermeyer

Obermeyer’s work offers a blueprint of what the center’s impact could look like in practice. Through his research, Obermeyer found there was a need to improve physicians’ diagnoses of a patient’s probability of heart attack, an action that can trigger tests and other urgent care. Working with a major healthcare system, he developed an algorithm that could support doctors in emergency rooms as they screen patients and make crucial life or death decisions.

But will that algorithm work in practice? Obermeyer intends to find out. He’s now conducting randomized trials to see if the machine learning method he developed for an academic paper can become a real-world medical solution used in emergency rooms.

“We’re seeing so many papers come out in this area. I don’t think we’ve seen the impacts we want to see from those academic projects,” said Obermeyer, an affiliated faculty member of the Computational Precision Health program. “I think it’s because of that different skill set and because of the difficulties of translating academic ideas into the world.”

“We want to take all of this intense energy and interest in AI and health and make sure that’s turning into benefits for patients and for the healthcare system,” he said.

Increasing access to industry data, feedback

The Center for Healthcare Marketplace Innovation is just getting started, but already its docket is stacked with ambitious projects.

For example, the center is close to signing multiple large-scale, multimodal data access agreements with healthcare partners. The data is typically tightly held, and it can take years for academics to access it, Obermeyer said. That limits what research can be done to tackle health problems and the usefulness of related AI, which is only as good as the data it has access to train on, he said. Making it easier to access that data – and keeping it secure and used ethically – will unleash possibilities for research and impact in computational health.

The center is also setting up an industry feedback platform, where large healthcare providers and others can share with researchers what problems they’re trying to solve for their patients, clinicians and systems. This input could lead to research and provide on-the-ground insights to inform the center’s efforts.

Additionally, the center will soon begin piloting a new generative AI model that offers clinical coaching to medical professionals. And it’s hosting an economics and policy conference – the Occasional California Health Economics Workshop – on March 8.

These initiatives offer a glimpse of the new path forward the center is trying to create at Berkeley for this research, these industries and society.

“The future of AI and healthcare needs behavioral incentives, technological breakthroughs and data,” said Kolstad. “We’re working to bring those together.”

This article was also published by the College of Computing, Data Science, and Society with the headline “New center aims to create healthcare innovation research-to-impact pipeline.”

Media contact:

Laura Counts, Haas School of Business, [email protected]

Inaugural Berkeley Haas Sustainable Business Research Prize awarded to paper on biodiversity risk

January 29, 2024| by Laura Counts

Berkeley — A team of researchers who developed tools for investors, academics, and businesses to measure economic risks from the loss of the planet’s biodiversity has won the inaugural Berkeley Haas Sustainable Business Research Prize.

The new $20,000 prize, which recognizes research with the greatest potential to spur immediate change in the face of environmental crises, has been awarded to the paper “Biodiversity Risk” by Stefano Giglio of the Yale School of Management, and Theresa Kuchler, Johannes Stroebel, and Xuran Zeng of New York University’s Stern School of Business. (Read paper summary.)

Giglio says he and his co-authors are honored to receive the inaugural prize and hope it will encourage further research and practical change.

“While research in the field of climate finance has been expanding dramatically over the last few years, a lot more work needs to occur to ensure that the ideas developed in academic research find practical applications in the business and policymaking world,” Giglio says. “This is even more important for topics like biodiversity risks and its financial implications, where much less work has been done so far.”

Actionable research

The prize is administered by the Berkeley Haas Center for Responsible Business (CRB) and was launched with the support of Allan Spivack, MBA 79, to encourage serious scholarship with real-world business applications related to responsible business, sustainability, and ESG (environmental, social, and governance) issues.

The judging panel’s focus for the prize’s inaugural year was on papers that investigate economic levers to motivate individuals, corporations, and markets to act with urgency on climate and resource-saving initiatives. The winner was selected from a competitive field of 63 papers submitted by academic researchers around the world.

Berkeley Haas Dean Ann Harrison, a noted economist, served on the judging panel. “Thank you to our winning researchers for calling attention to the emerging area of biodiversity risk. All too often, groundbreaking academic research fails to gain traction or get put into practice in the ‘real world,’” Harrison said of the prize winners. “Rewarding research with direct implications for business and policy is another way that Berkeley Haas can help stem the multiple environmental crises we are facing.”

Defining biodiversity risk

The winning paper noted that humans rely on biodiversity to thrive. For example, diverse ecosystems are key to food production, while medicines are derived from natural compounds found in plants, animals, and microorganisms. Yet damages caused by the loss of ecosystem services alone—such as the supply of raw materials like food and fuel—have been estimated as high as $20 trillion per year, according to the paper.

Using surveys, news coverage, and analysis of 10-K statements, the researchers developed multiple measures of biodiversity risk. They determined that it is a separate phenomenon from climate risk and concluded that the energy, utilities, and real estate sectors are most exposed. They also concluded that biodiversity risks are partially reflected in stock prices over the past decade.

The researchers recommend that businesses regularly monitor and report how their activities affect the biodiversity of the areas where they operate, both directly and indirectly. It is also important that these data are aligned with emerging standards and regulations.

The paper has immediate applications: Investors can now use the scholars’ findings to better understand how biodiversity risk affects current and future business performance and take better-informed positions on industries and specific equities. At the same time, researchers can use the new measures to delve more deeply into impacts in economics, business, and human welfare, the co-authors say.

Three finalists

In addition to the winning paper, the judging panel—comprising sustainability researchers and practitioners affiliated with Haas—chose three finalists:

“Cost-Efficient Pathways to Decarbonizing Portland Cement Production,” by Gunther Glenk, Harvard University and University of Mannheim; Anton Kelnhofer, Technical University of Munich; Rebecca Meier, University of Mannheim; and Stefan Reichelstein, Stanford University and University of Mannheim.
- The researchers developed an economic model for identifying cost-efficient pathways for decarbonization. Read full summary.
“CRISK: Measuring the Climate Risk Exposure,” by Hyeyoon Jung, Federal Reserve Bank of New York; Robert Engle, NYU Stern School of Business; and Richard Berner, New York University’s Stern School of Business.
- Figuring out how much risk financial institutions face from climate change poses challenges. To address these challenges, the authors suggest using market-based metrics. Read full summary.
Corporate decarbonization initiatives matter less than state climate policies,” by Benjamin Leffel, UNLV School of Public Policy and Leadership; Thomas Lyon, University of Michigan’s Ross School of Business; and Joshua Newell, University of Michigan’s School for Environment and Sustainability.
- Corporate America needs to decarbonize due to its massive contribution to climate change, but how? This paper seeks to understand the most effective way of closing the emissions gap by exploring if corporations can be left alone to govern themselves or if subnational (city and state) government policies should contribute to this fight. Read full summary.

The prize is part of Dean Harrison’s three strategic priorities for the Haas School: sustainability, entrepreneurship, and diversity, equity, inclusion, justice, and belonging (DEIJB). As the top public business school, Berkeley Haas is committed to addressing sustainability challenges by preparing its students to lead the transition to a sustainable and inclusive economy through designing and implementing new business models, policies, and solutions.

Read the Yale SOM announcement.

Gen AI, hybrid work, and DEIB are hot topics at 6th annual Culture Connect Conference

January 24, 2024| by Haas News

All of the speakers from day two of the conference pose for a photo on stage. — Photo: Jordan Joseffer

More than 250 business leaders and academic researchers gathered at Berkeley Haas from Jan. 9-10 for the sold-out Culture Connect Conference, sharing challenges and insights on creating high-performing, inclusive cultures in the age of generative AI and hybrid work.

The sixth annual conference, organized by the Berkeley Haas Center for Workplace Culture and Innovation (BCC), featured talks by top leaders from IBM, Lyft, Pixar, LinkedIn, Hubspot, and other leading companies, along with hands-on workshops and discussions. It was led by the center’s Co-Founding Directors Jennifer Chatman and Sameer Srivastava, and organized by Program Director Audrey Jones.

Chatman, the Paul J. Cortese Distinguished Professor of Management at Haas, said she was struck by the stories leaders shared of trying, failing, and trying again as they have experimented in real time with AI and hybrid work.

“My biggest takeaway is that an experimental mindset is critical as organizations approach these very significant changes that everyone is facing today,” Chatman said. “Organizations are going through seismic shifts in how they are thinking about and conducting work. The conference was fascinating because leaders shared their stories—the good and the bad—as they navigate these changes.”

People sit at tables listening to a presentations in a large event room with big windows. — Photo: David Ho

This was the first year the conference was open to the broader public beyond invited presenters and BCC partners. Attendees included about 100 academics and 150 industry leaders from a diverse range of industries, including health care, biopharmaceuticals, media, tech, financial services, film, government, and nonprofits. Seventy companies represented.

“The combination of research-backed evidence from academics and practical advice from seasoned industry leaders is difficult to bring together but when it happens, it yields a level of insight that could not be achieved by either perspective alone,” added Srivastava, the Ewald T. Grether Professor of Business Administration and Public Policy. “We’re immensely grateful to every speaker, workshop leader, facilitator, and participant who contributed to making this a meaningful event of learning and connecting.”

A person reads a poster about leading culture. — Photo: Jordan Joseffer

Day 1: Diverse perspectives on organizational culture academic research

The first day of the conference emphasized research, with presentations from 34 scholars from around the world who examine culture through the lens of sociology, social psychology, and economics. Keynote talks included Paul Ingram of Columbia on how people tend to conceal social class identities; Doug Guilbeault of Berkeley Haas on how gender biases tend to be stronger and more persistent in online images than in text; Anita Williams Woolley of Carnegie Mellon on how the drivers of collective intelligence in teams differ from individual intelligence; and Leo Bursztyn of the University of Chicago on how to create social change by correcting misperceptions about prevailing norms.

Former Haas Dean Rich Lyons, Associate Vice Chancellor and Chief Innovation & Entrepreneurship Officer at UC Berkeley, and Laura Hassner, executive director at UC Berkeley Innovation & Entrepreneurship, reported on the success of the UC Berkeley Changemaker program, a campus-wide certificate program including about 30 courses addressing critical thinking, communication, and collaboration—and enrolling about 20% of undergraduates.

Doctoral student Yingjian Liang of Indiana University Bloomington won the Edgar Schein Best Student Paper Prize. Second place went to Danyang Li of Berkeley Haas.

Day 2: Deep dives into three key themes

Future of work and hybrid workspaces

Yamini Rangan speaks on stage. — Photo: Jordan Joseffer

The second day of the conference was attended by about 200 industry leaders and academics. HubSpot CEO Yamini Rangan, MBA 03 (left), sat down with Chatman (right) for a fireside chat. Rangan said companies should treat culture as a product that management consistently refine. “You have to evolve your culture every day, every week, like a product,” Rangan said. She also emphasized the importance of building a team of leaders, rather than building a leadership team to make culture inclusive. “Culture is how people behave when leadership is absent,” she said.

Nicholas Bloom, an economics professor at Stanford, shared data on how firms are adapting to remote and hybrid work across different sectors of the economy. Bloom noted that the effect of remote work on productivity has been neutral, while the impact on productivity has been typically positive. “Organized hybrid has won,” he said.

Kristen Sverchek, president of Lyft, detailed the company’s journey with hybrid work, and Martine Haas, a management professor at the Wharton School, offered a framework for thinking about a firm’s hybrid culture.

Laszlo Bock speaks on stage. — Photo: Laura Counts

In a fireside chat with Srivastava (above right), Laszlo Bock, CEO and co-founder of Humu & Gretel.ai (above left), discussed how to help employees find meaning and connection while using hybrid work models. Bock, who formerly worked in People Operations at Google, shared an impactful exercise used at Google: Find three or four interesting stories about people within the company, and brief execs on these stories again and again so that they retell the stories. These stories aren’t PR, he said—they will resonate to help give a sense of a strong, cohesive culture.

DEIB focus

A panel of five people engage in a discussion on stage. — Photo: Jordan Joseffer

Shifting focus, Co-founder, Coach, and Consultant Kia Afcari (above left) moderated a roundtable on diversity, equity, inclusion, and belonging.

During the discussion, Reema Batnagar, vice president of people at Pixar (2nd from left), emphasized the importance of using personal stories as a way to foster inclusion and belonging at work. David W. Kim, chief DEI officer at NetApp (2nd from right), discussed why corporate leaders must maintain the momentum of their DEI efforts despite recent pushbacks. David Pedulla, a sociology professor at Harvard (right), highlighted the extent to which various forms of discrimination still persist in the labor market.

Sa-kiera Hudson, an assistant professor at Haas (middle), shared recent research findings that emphasize the importance of understanding intersectionality, specifically how gender and race can work together to amplify or dampen various forms of bias. Hudson emphasized that people are complex and we should never assume that their experience within a group is aligned with their perceived identity.

Chris Bell and Jamie Woolf pose for a photo on stage. — Photo: Jordan Joseffer

CreativityPartners Chief Associate Chris Bell (above left) and Co-founder and CEO Jamie Woolf (above right) led a workshop on how to create a sense of belonging through mutual storytelling.

Generative AI’s transformative role

Nickle LaMoreaux speaks on stage. — Photo: Brandie Brooks

In a fireside chat with Chatman (above right), Nickle LaMoreaux, chief human resources officer at IBM (above left), described how she and her colleagues have been harnessing AI to transform the role of HR in the organization.

Three people engage in a discussion on stage. — Photo: Jordan Joseffer

MIT Professor Kate Kellogg (above middle) and Warwick Business School Professor Hila Lifschitz-Assaf (aboove left) discussed a generative AI field experiment conducted at Boston Consulting Group. Hatim Rahman (above right), an assistant professor at the Kellogg School of Management, shared research on the importance of technological certification in the labor market.

Two people engage in a discussion on stage. — Photo: Jordan Joseffer

Teuila Hanson (above left), chief people officer at LinkedIn, emphasized the need to take a people-centric approach when adopting AI tools and technologies, since human skills—including human intuition that AIs lack—are critical. “The future of work is still human,” she said.

Berkeley Haas ranked #1 for finance research

May 17, 2023|By Haas News

student walking toward faculty building at Haas with campanille in back — Photo Copyright Noah Berger / 2021.

The Haas School of Business at the University of California, Berkeley has been ranked #1 for finance research among almost 150 business schools worldwide in a new global research ranking.

The ranking is based on publications in the top six finance journals as well as a host of other top-tier economics, finance, and business journals from 2000 to 2023. It was prepared by the Olin Wells Fargo Advisors Center for Finance and Accounting Research at Washington University in St. Louis.

Berkeley Haas finance faculty came out on top for per-capita research output over the 23-year period. On average, they published .71 papers in top journals every year.

“We know that our finance faculty is incredibly strong, and this is quantifiable proof that they are true rock stars,” said Dean Ann Harrison. “We are very proud of the strength and influence of our finance researchers.”

The ranking considers articles published only by finance professors, as well as non-finance professors who have published at least three papers in the top three finance journals.

“Our group provides cutting-edge research in finance, and this ranking is a testament to it,” said Associate Professor David Sraer, chair of the Finance Group. “Given our brilliant junior faculty, I am confident this trend will continue in the future!”

After SVB failure, Haas faculty raise concerns about systemic weaknesses in banking

March 14, 2023| by Laura Counts

A pedestrian passes a closed Silicon Valley Bank branch in San Francisco on Monday, March 13, 2023. (AP Photo/Jeff Chiu)

As repercussions from the stunning collapse of Silicon Valley Bank (SVB) continue to ripple through the banking industry, we asked Haas experts for their views on where the system broke down and whether there may be broader trouble viewing.

Professors Ross Levine, Panos Patatoukas, and Nancy Wallace said SVB’s problems were “banking 101” and that its management and board failed in their fiduciary duties. Levine, a banking industry expert, said the situation “suggests stunningly incompetent bank supervision and regulation,” and cited research that Silicon Valley Bank may be “the tip of a gigantic iceberg.” Patatoukas agreed, asking “If (regulators) cannot spot something as straightforward as SVB’s issues, then what else are they missing?”

Professor Ross Levine, Willis H. Booth Chair in Banking and Finance, Haas Economic Analysis & Policy Group

“Silicon Valley Bank (SVB) failed in the simplest and most vanilla way. It had long-term assets, including Treasury securities and other U.S. government backed-securities, and short-term liabilities, namely deposits. This exposed the SVB to interest rate risk because long-term securities are much more sensitive to interest rate changes than deposits. As interest rates went up over the last year, the price of long-term securities went down, challenging SVB’s solvency.

Regulators at the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) did not need sophisticated supervisory and regulatory skills or elaborate training to recognize such interest rate risk. It is banking 101.

While new information might emerge, current knowledge suggests stunningly incompetent bank supervision and regulation. The Federal Reserve and FDIC regulators need to explain why they did not require SVB to hedge interest rate risk three years ago, two years ago, etc.

The apparent failure of Federal Reserve and FDIC regulators in the case of SVB raises questions about the effectiveness of U.S. regulatory authorities in general. First, if regulators failed to address the most basic of risks—interest rate risk—in SVB, did they miss this interest rate risk in other banks? Second, have regulators effectively addressed the more complex risks that some banks take? Third, did regulators allow systemic risks to grow in the U.S. banking system?

Recent research provides an alarming answer to whether the Federal Reserve and FDIC blew it on interest rate risk beyond SVB, suggesting that SVB is the tip of a gigantic iceberg. A study conducted over the weekend indicates that the market value of U.S. banking assets is about $2 trillion dollars less than the reported book value due to increases in interest rates during the last year. It is impossible to determine the degree to which banks used derivatives to hedge interest rate risk. Thus, one cannot conclude definitively that the U.S. banking system experienced a loss of $2 trillion. However, these statistics, in conjunction with the details on SVB, scare me.

While Secretary of the Treasury Janet Yellen and Jay Powell, Chair of the Federal Reserve Board, might claim that the U.S. banking system is very well capitalized and very well supervised and regulated, they have some explaining to do.

Recent events also raise concerns about the competency of U.S. monetary policy, which, like much of bank regulation, is conducted by the Federal Reserve. The Federal Reserve started raising interest rates a year ago to combat inflation. (As a side point, the Federal Reserve created the inflation it is now combating.) It should have been evident to the Federal Reserve that banks with long-term assets and short-term liabilities that had not hedged interest rate risk would experience significant losses as interest rates rose. Moreover, the Fed has or can obtain information on banks’ assets and liabilities and the degree to which they were hedging interest rate risk. Thus, they knew—or should have known—which banks were most exposed to interest rate risk as they started raising interest rates. As a result, even if bank regulators failed to force banks to address interest rate risk before the Federal Reserve began to raise rates, the Fed should have been aware of this vulnerability as it started tightening monetary policy to fight inflation.”

Associate Professor Panos Patatoukas, the L.H. Penney Chair in Accounting, Haas Accounting Group

“The SVB management and board failed in their fiduciary duties. The Fed also failed in its supervisory role since it failed to spot a basic duration mismatch and a massive run-prone deposit base, together with a lack of interest rate risk management on the part of SVB. It would have been straightforward to see from SVB’s financial statements that its (tier 1) liquidity ratio was much lower after accounting for the accumulated but unrecognized losses from the revaluation of their long-term bond portfolio, which basically indicates that SVB had elevated risk well before the run on the bank.

The SVB failure raises concerns about structural problems impacting regional banks, their depositors, and capital providers. It also raises concerns about the ability of regulators to spot risks ahead of time. If they cannot spot something as straightforward as SVB’s issues, then what else are they missing?”

Professor Nancy Wallace, Lisle and Roslyn Payne Chair in Real Estate and Capital Markets

Berkeley Haas Prof. Nancy Wallace — Prof. Nancy Wallace

“This is a monumental failure of risk management on the part of both the bank and the regulators. Interest rate risk is basic banking 101. Added to that is the very large depositor concentration from one industry. I also suspect that the loans on (Silicon Valley Bank’s) balance sheet are likely to be poorly underwritten given the overly cosy relationship between the bank and the king makers in Silicon Valley. They frequently provided loans to startups as a bridge between funding rounds. They did this to protect startup founders from the dilution effects of additional equity rounds—the more normal way to fund startups.”

Ann Harrison reappointed to second term as Berkeley Haas dean

February 13, 2023| by Kim Girard

Woman standing with arms crossed in multicolored sweater — Dean Ann Harrison. Photo: Noah Berger

Berkeley Haas Dean Ann Harrison, lauded for keeping the school’s six business programs ranked among the world’s best and significantly expanding the breadth and depth of the faculty, has been appointed to serve a second five-year term.

UC Berkeley Chancellor Carol Christ and Executive Vice Chancellor and Provost Benjamin Hermalin announced Harrison’s reappointment today. Her new term begins July 1, 2023.

“Please join us in congratulating Ann on her reappointment and her many accomplishments,” they said in a campus announcement. “With a focus on innovation and entrepreneurship, sustainability, and DEIJB (diversity, equity, inclusion, justice, and belonging), her bold and transformative vision for the future of Haas will continue to set it apart from other top business schools.”

Harrison said she is thrilled by the reappointment and the opportunity to continue supporting student learning and well-being, growing the faculty and providing them with the necessary resources to conduct groundbreaking research, teaming up with the superb staff, and strengthening the school’s finances and reputation.

Dean Ann Harrison sitting in a chair in the Haas courtyard — Dean Harrison in the Haas courtyard, where the school’s Defining Leadership Principles (including Confidence without Attitude) are etched in stone. Photo: Noah Berger

“As a public university, our mission is to transform the lives of as many students as possible and lead the world with path-breaking research,” Harrison said. “I am so proud of our faculty strengths across so many different areas—from real estate and finance to strategy, economics, marketing, and management. Haas graduates are transforming business to tackle the world’s most pressing challenges.”

“I am so proud of our faculty strengths across so many different areas—from real estate and finance to strategy, economics, marketing, and management. Haas graduates are transforming business to tackle the world’s most pressing challenges.”

Advancing the mission

Harrison is the 15th dean of Haas and the second woman to lead the school. Her new book, “Globalization, Firms, and Workers” (World Scientific Books, 2022), collects her path-breaking work on globalization and international trade. She is now the world’s most highly cited scholar on foreign direct investment.

Harrison earned her BA from UC Berkeley in economics and history, and her PhD from Princeton University. She held previous professorships in UC Berkeley’s College of Agricultural and Resource Economics as well as at Columbia University and the Wharton School, where she was the William H. Wurster Professor of Management.

At Haas since January 2019, Harrison has advanced the school’s mission in a number of critical areas, including:

increasing the size of the faculty, which allowed for diversification and the creation of new faculty groups. Since she arrived in 2019, Harrison has led the hiring of 33 new professors; 52% are women and 52% are people of color.
creating the first Flex online MBA cohort at any top business school. Haas applied learnings from the pandemic, using new technology to make the MBA available to expanded groups of international students and working parents who require flexible schedules.
raising a record $200 million over the last four years, including a record $69 million last year. Under Harrison, Haas secured the largest single gift in the school’s history—$30 million from alumnus Ned Spieker, BS 66—to turn the undergraduate program into a four-year program.
committing to making Haas a more inclusive school by creating a more diverse Haas Advisory Board; employing extensive resources to diversify the student body; rethinking faculty and staff hiring; and incorporating anti-bias training for senior leaders, staff, and students.

Harrison said she will continue to work with her team to strengthen academics as well as the student experience at Haas. One important goal is to ensure that the school’s six degree programs remain the best in the world. In its 2023 b-school ranking, announced today, the Financial Times named the Berkeley Haas Full-time MBA Program #4 in the U.S. and #7 worldwide, a record high for the program. US News & World Report ranks both the highly-selective Haas Undergraduate Program and the Evening & Weekend MBA Program #2 in the U.S. The Master’s in Financial Engineering (MFE) Program is also ranked #2 globally.

In its 2023 b-school ranking, announced today, the Financial Times named the Full-time MBA Program #4 in the U.S. and #7 worldwide, a record-high for Haas.

Three priority areas

She also plans to continue work in her three priority areas: sustainability, DEIJB, and entrepreneurship.

“Business plays a critical role in mainstreaming everything from fighting climate change to creating more inclusive and equitable workplaces,” Harrison said. “Haas is preparing students to lead in those areas.” The school’s Accounting Group, for example, is assessing SEC proposals to increase financial disclosure requirements for climate risk, she said.

In sustainability, Harrison brought in Michele de Nevers, a top sustainability expert, from the World Bank, whose team has worked to combine the existing sustainability curriculum with new courses. By the end of 2023, all core courses at Haas will be on track to incorporate cases, topics, and assignments that will empower students to address climate change and other sustainability challenges through business. Haas is now set apart as the only school that offers depth and breadth across all of the key sustainability areas aligned with the UN Principles for Responsible Management Education: energy, food, real estate/built environment, corporate social responsibility, and impact finance.

In diversity and inclusion, Harrison oversaw the building of a team led by Chief DEI Officer Élida Bautista, which includes four full-time staff and a part-time diversity expert who is working with faculty on curriculum and teaching. This past spring, the school launched its first-ever core course on leading diverse teams.

Known for its strength in entrepreneurship and innovation, Haas will be breaking ground on a new entrepreneurship hub this spring. In partnership with UC Berkeley, which is the #1 public institution for startup founders (as reported by Pitchbook), the hub will bring together students from across campus to network and innovate. On the faculty side, Harrison oversaw the creation of the new Entrepreneurship and Innovation faculty group in 2020.

Dean Ann Harrison with Kimberly Mendez, Nicole Austin-Thomas, and Almaz Ali, MBA 21s, at the Berkeley Haas Consortium student welcome event in 2019.

Cross-campus collaboration

Harrison, who has deep relationships with leaders across UC Berkeley, has also prioritized cross-campus collaboration, increasing the number of academic programs offered by Haas. She worked closely with the Berkeley School of Public Health and School of Law to bolster their joint programs and launched the Robinson Life Science, Business, and Entrepreneurship Program with the Department of Molecular and Cell Biology, the MBA/MEng degree with the College of Engineering, and the summer minor in sustainable business and policy with the Department of Agricultural and Resource Economics.

She is currently developing a concurrent degree program for a joint MBA and master’s degree in climate solutions with the Rausser College of Natural Resources.

Berkeley Haas welcomes nine new professors

June 28, 2022|By Laura Counts and Jenny Lee

New Berkeley Haas faculty members 2022 — From top row, left to right: New Berkeley Haas assistant professors Tanya Paul, Ali Kakhbod, Carolyn Stein; Sa-Kiera Hudson, Ambar La Forgia, Sytkse Wijnsma, Sarah Moshary, Matthew Backus, and Valerie Zhang.

Nine new assistant professors have joined the Haas School of Business faculty this year, with cutting-edge research interests that range from illicit supply chains to unequal social hierarchies; from financial crises to the incentives that shape innovation; and from health care management to decentralized finance to marketing and the demand for firearms.

The nine tenure-track hires are the result of a concerted effort by Dean Ann E. Harrison and other Haas leaders to expand and diversify the faculty.

“We are thrilled to welcome this wonderful, diverse new group of academic superstars to Berkeley Haas,” says Dean Ann E. Harrison. “We clearly are bringing the best to Haas, increasing the depth and breadth of our world-renowned faculty, and reinforcing our place among the world’s best business schools.”

The new faculty members have hometowns throughout the U.S. and around the world, including Texas, New York, Massachusetts, and Illinois; Iran, the Dominican Republic, China, and the Netherlands. Seven of them are women; one is Black, and one is Latinx.

“This is our most diverse cohort of new faculty ever, each one a rock star in their own right,” says Jennifer Chatman, Associate Dean for Academic Affairs and the Paul J. Cortese Distinguished Professor of Management. “We are very proud that we were able to lure them to Berkeley Haas.”

The new faculty members start on July 1, with most beginning to teach in spring 2023. They bring the total size of the ladder faculty to 88, up from 78 in 2020-2021.

Meet the faculty

Assistant Professor Matthew Backus, Economic Analysis & Policy
(he/him)

Hometown: Chicago, Ill.

Education:
PhD, Economics, University of Michigan, Ann Arbor
MA, Economics, University of Toronto
BA, Economics and Philosophy, American University

Research focus: Industrial organization

Introduction: I’m an economist with broad interests. Most recently, I’m interested in how we can use the tools developed by the industrial organization community to understand inequality and the distributional effects of policy.

Teaching: Microeconomics and Antitrust Economics (MBA)

Most excited about: After spending a year visiting, I’m most excited about the economics community at Berkeley.

Fun fact: I have a border collie, who is in training as a herding dog.

Assistant Professor Sa-kiera (Kiera) Tiarra Jolynn Hudson, Management of Organizations
(she/her)

Hometown: Albany, NY

Education:
PhD/MA, Social Psychology, Harvard University
BA, Psychology and Biology, Williams College

Research focus: I study the psychological processes involved in the formation, maintenance, and intersections of unequal social hierarchies, with a focus on empathic/spiteful emotions, stereotypes, and legitimizing myths.

Introduction: I am a social psychologist by training, focusing on the nature of intergroup relations as dominance and power hierarchies. I have studied several psychological processes, including the role of legitimizing myths in justifying unequal societal conditions, the role of group stereotypes in the experience and perception of prejudice, and the role of empathic and spiteful emotions in supporting intergroup harm. My work is multidisciplinary, incorporating quantitative as well as qualitative methods from various disciplines such as political science, sociology, and public policy.

I am a fierce advocate for building community, providing mentorship, and supporting authentic inclusion for everyone. I believe it is a moral imperative to be present as a vocal, queer-identified Black women in academe, given the lack of representation, and I’m excited to see how I can contribute to diversity, equity, and inclusion efforts at Haas.

Teaching: Core Diversity, Equity, and Inclusion (MBA)

Most excited about: I identify UC Berkeley as my intellectual birthplace. It was during a summer internship program through the psychology department in 2010 where I first became interested in studying power structures and intergroup relations simultaneously. My overall research interests haven’t changed since that fateful summer. Being a faculty member here is truly a dream come true!

Fun fact: I love organizing and planning, so much so I taught myself how to use Adobe InDesign to create my own planner. I am also an avid foodie and cannot wait to check out the Bay’s food and wine scenes.

Assistant Professor Ali Kakhbod, Finance
(he/him)

Hometown: Isfahan, Iran

Education:
PhD, Economics, MIT
PhD, Electrical Engineering & Computer Science (EECS), University of Michigan

Research focus: Information frictions; liquidity; market microstructure; big data; and contracts

Introduction: I am a financial economist with research interests in financial intermediation, liquidity, contracts, big (alternative) data, banking and financial crises. A common theme of my research agenda is to study various informational settings and their financial and economic implications. For example: When does securitization lead to a financial crisis? Why is there heterogeneity in the means of providing advice in corporate governance? How does information disclosure in OTC (over-the-count) markets affect market efficiency? My research has both theory and empirical components with policy implications.

Teaching: Deep Learning in Finance (MFE)

Most excited about: Berkeley Haas is the heart of what’s next with world-class faculty working on exciting and innovative research. Given that my interdisciplinary research interests span finance, economics and big data issues, I could not ask for a better fit.

Fun fact: In my free time, I like to ski, sail, hike, and enjoy the outdoors.

Assistant Professor Ambar La Forgia, Management of Organizations
(she/her)

Hometown: I was born in Santo Domingo, Dominican Republic, but I grew up in Washington, DC and São Paulo, Brazil.

Education:
PhD, Applied Economics and Managerial Science, The Wharton School, University of Pennsylvania
BA, Economics and Mathematics, Swarthmore College

Research focus: Health care management; mergers and acquisitions; firm performance

Introduction: My research studies the relationship between organizational and managerial strategies and performance outcomes in the health care sector. In particular, I use quantitative methods to study how the strategic decisions of corporations to merge, acquire, or partner with other organizations can change managerial processes in ways that impact both financial and clinical performance. A secondary research strand studies how health care organizations adapt their service delivery and prices following changes in state and federal legislation.

Before joining UC Berkeley, I was an assistant professor of health policy and management at Columbia University’s Mailman School of Public Health. I am excited to continue to explore issues of healthcare quality, equity, and cost, while digging deeper into the management practices and organizational structures that could influence these outcomes.

Teaching: Leading People (EWMBA)

Most excited about: It is an honor to join the world-class faculty at Haas, and I am so excited to learn from and collaborate with my MORs colleagues on both the macro and micro side. Since my research is interdisciplinary, I also look forward to connecting with scholars in the School of Public Health.

As a self-proclaimed “city girl,” I am excited to get out of my comfort zone and explore the natural beauty of Northern California.

Fun fact: My hobbies include yoga, urban gardening, adopting animals and stand-up comedy.

Assistant Professor Sarah Moshary, Marketing
(she/her)

Hometown: New York City, NY

Education:
Phd, Economics, MIT
AB, Economics, Harvard College

Research focus: Marketing and industrial organization

Introduction: My research interests span quantitative marketing, industrial organization, and political economy. I am currently working on projects related to paid search advertising, the pink tax (price gap in products targeted to women), and the demand for firearms. Before joining Haas, I worked at the University of Chicago Booth School of Business and at the University of Pennsylvania.

Teaching: Pricing (MBA)

Most excited about: I am excited to get to know my future colleagues!

Fun fact: My two hobbies are running and pottery—though I am more enthusiastic than talented at either :).

Assistant Professor Tanya Paul, Accounting
(she/her)

Hometown: Murphy, Texas

Education:
PhD, Accounting, The Wharton School, University of Pennsylvania
BS, Economics, Statistics and Finance, The Wharton School, University of Pennsylvania

Research focus: Standard-setting and financial reporting; the determinants and consequences of voluntary disclosures

Introduction: After getting my PhD, I spent a year at the Financial Accounting Standards Board learning about contemporary accounting issues and understanding the types of questions that standard setters are grappling with. I hope to continue working on research that is helpful to standard setters in coming up with standards that ultimately improve financial reporting.

Teaching: Corporate Financial Reporting (MBA)

Most excited about: I love how interconnected the area groups are within Haas. There are so many potential learning opportunities, especially for a newly minted researcher like me.

Fun fact: In my free time, I love to read and play the piano—I had learned it as a child and am trying to relearn it now as an adult.

Assistant Professor Carolyn Stein, Economic Analysis & Policy
(she/her)

Hometown: Lexington, Mass.

Education:
PhD, Economics, MIT
AB, Applied Mathematics and Economics, Harvard College

Research focus: Economics of science, innovation, and applied microeconomics

Introduction: I study the economics of science and innovation. My research combines data and economic theory to understand the incentives that scientists face and decisions that they make, and how this in turn shapes the production of new knowledge.

One thing I love about economics is that it’s less of a narrow subject area, and more a set of tools and principles that apply to a stunningly wide array of topics. I’m excited to work with Haas students to help them understand how economic principles can improve their decision-making, both in their careers and in other areas of their lives—maybe even in ways that surprise them!

Teaching: Microeconomics (EWMBA)

Most excited about: I’m excited to be part of a large and superb applied microeconomics community—at Haas, and more broadly at Berkeley as a whole.

Fun fact: I am an avid cyclist and skier, and I was on the cycling team at MIT. Since moving to the Bay Area, I’ve loved the hills and mountains in the area. I’m working on taking my riding off road (gravel and mountain biking) and skiing off-piste (backcountry).

Assistant Professor Sytkse Wijnsma, Operations and IT Management
(she/her)

Hometown: Amsterdam, the Netherlands

Education:
PhD, Management Science and Operations, Judge Business School, University of Cambridge
MPhil, Management Science and Operations, Judge Business School, University of Cambridge
BSc & MSc, Economics and Finance, VU University, Amsterdam

Research focus: My primary research interest is designing supply chain and policy interventions that help solve real-world challenges with social and environmental impact.

Introduction: I am very excited about my projects on illicit supply chains and how they undermine social and environmental goals. The context of these projects spans a wide range of areas, from illicit waste management to illegal deforestation. I am also excited to deepen and expand ongoing research collaborations with governments and industry to investigate these issues.

Teaching: Sustainability in Business (Undergraduate)

Most excited about: Many things! Berkeley Haas, being at the forefront of sustainability, has a unique position that combines the same ideals that drive my research with opportunities for collaborative research with serious impact. The amazing colleagues and close connections to industry make it even more exciting to join this community!

Fun fact: My first and last name originate from Fryslân, a northern province in the Netherlands, where it is still tradition to name your children after family members. So although my name is quite rare in the rest of the world, in our family it crops up in every generation!

Assistant Professor Valerie Zhang, Accounting
(she/her)

Hometown: Shanghai, China

Education:
PhD, Northwestern Kellogg School of Management
MA, Economics, University of Toronto
BCom, Finance and Economics, University of Toronto

Research focus: Information dissemination; information cascades on social media; retail investor behavior; decentralized finance

Introduction: I am passionate about doing research or working on personal projects that can express my creativity. I enjoy merging disjointed ideas and working on interdisciplinary research. My dissertation combines two literatures: one in computer science on information cascades on social media, and another in finance and accounting on the effects of disseminating financial news. I am also very curious about emerging technologies that are reshaping the financial industry. Since I work on areas that are new to the research community, I sometimes feel like a lone traveler exploring completely new territories. It is terrifying but also extremely rewarding!

Teaching: Financial Accounting (Undergraduate)

Most excited about: I look forward to inspiring my students to be entrepreneurial and to come up with creative business ideas or projects.

Fun fact/hobby: I write short stories. The one I am working on has an alien and a squirrel in it.

Evidence shows the Clean Air Act has reduced racial disparities in exposure to pollution

October 9, 2020|By Morgan Foy

A 2015 photo shows air pollution over Los Angeles at sunset (Credit: Csondy for iStock/Getty Images)

Air pollution has disproportionately hurt minority and low-income communities, leading to reduced life expectancy, research has found. Yet a lack of data has stymied efforts to quantify the problem—and its causes—nationwide.

A recent study, anchored by new satellite-based measures of air quality, found some encouraging news: The gap between Black and white Americans’ particulate exposure has declined over the past two decades, due largely to enforcement of the Clean Air Act in the country’s most polluted areas.

Berkeley Haas Assoc. Prof. Reed Walker, along with Princeton University Prof. Janet Currie and Economist John Voorheis of the U.S. Census Bureau, combined satellite measurements of local air quality with administrative data on 30 million household’s locations to examine how racial disparities in pollution exposure have evolved over the last 20 years. Their working paper was recently released by the National Bureau of Economic Research (NBER).

“The existing research on air pollution has been hampered by a sparse Environmental Protection Agency monitoring network, but satellite-based measurements of air quality have greatly expanded the ability of policymakers and researchers to fill in the huge gaps in exposure measurement throughout the U.S.,” said Walker, of the Business and Public Policy Group. “We’ve used this new data to come to show how the Clean Air Act has led to a narrowing of the gap in pollution exposure between Black and white communities.”

Walker said he believes this is the first paper “to explore the underlying causal drivers that contributed to the narrowing of this gap.” The researchers combined fine-grained measures of ambient air pollution levels of particulate matter for the entire United States. with more than 30 million individual survey responses from the U.S. Census and the American Community survey. They found that while African Americans were more likely to live in areas with higher pollution, relative improvements in air quality from 2000 to 2015 have narrowed this gap considerably.

This raised the question of whether the improvements seen over the last 20 years were because Black Americans moved to less-polluted neighborhoods, or whether neighborhoods with high percentages of Black Americans became cleaner.

The researchers estimated that only a small share of the reduction in the exposure gap was due to shifting population patterns, as Black Americans moved to less-polluted neighborhoods and white Americans moved to relatively dirtier ones, such as city centers. However, they estimated that these mobility patterns accounted for only 13% of the decrease in the Black-white exposure gap over the study period.

Instead, they found much stronger evidence for a second explanation—that the decline in the Black-white mortality gap was primarily the result of air quality improvements within areas with a higher share of Black residents. And the improved air quality in these areas correlated with the introduction of national ambient air quality standards for small particulates (PM2.5) in 2005, when the Environmental Protection Agency (EPA) began enforcing these new standards under the Clean Air Act.

Each year, the EPA targeted counties that were not in compliance with the pollution standards. Following enforcement actions, pollution levels declined by about 8% in non-compliant counties relative to those counties in compliance with the Clean Air Act, Reed and his co-authors found.

In fact, the researchers estimated that 60% of the overall decline in the Black-white pollution gap was due to the enforcement of Clean Air Act regulations in the most polluted areas.

“The Clean Air Act has disproportionately improved air quality in low-income and minority communities, and this is almost by design given how the Act was written over 50 years ago,” Walker said.

Nobel laureate Oliver Williamson, pioneer of organizational economics, dies at 87

May 23, 2020|By Haas News

Oliver Williamson, a UC Berkeley and Haas School of Business professor for nearly three decades whose elegant framework for analyzing the structure of organizations won him a Nobel Prize in Economic Sciences, passed away on May 21, 2020 in Oakland, Calif. at the age of 87. His death followed a period of failing health.

“Williamson’s work permanently changed how economists view organizations,” said Prof. Rich Lyons, who was dean of the Haas School when Williamson won the Nobel and is now UC Berkeley’s Chief Innovation and Entrepreneurship Officer. “Yet for all of his intellectual creativity, I most often think of Olly as a person who lifts others. The ripple effects that he has had on his field through his students and colleagues could well be as large as the enormous impact his own work had.”

Williamson, the Edgar F. Kaiser Professor Emeritus of Business at Haas and Professor Emeritus of Economics and Law at UC Berkeley, received the most prestigious prize in economics in 2009 for his insights into what’s known as the “make or buy” decision. This is the process by which businesses choose whether to outsource a process, service, or manufacturing function or to perform the work in-house.

Williamson’s path-breaking contributions to economics were deep and boundary-spanning. They included seminal work that laid the foundation for the now-burgeoning fields of organizational and institutional economics. Traditional economic approaches of the early 1970s did not allow for analysis of governance within organizations. By showing that economics could illuminate the costs and tradeoffs that parties make in transactions, Williamson’s work brought governance and the management of relationships into economic theory.

His multidisciplinary approach to analyzing organizational structures was unconventional in economics at the time—he described it as a melding of soft social science with abstract economic theory. He looked not only at formal firm structure but at culture and social norms. Prof. Ernesto Dal Bó, the Phillips Girgich Professor of Business, called Williamson’s work “a fountain of vocation-shaping epiphanies.”

“After reading his work, we could no longer think of markets, organizations, and legal or political institutions in the same way. And so we didn’t,” Dal Bó said. “His insights are now part of the common sense of social scientists.”

Williamson’s theories gave rise to a new wave of empirical literature that tested his method of analysis in a wide range of industries, and shaped fields as diverse as public policy, law, strategy, and sociology. His “transaction cost” approach has since shed light on thinking about the design of joint ventures, long-term contracts, and bureaucracy more generally. His influence can be seen around the world, from electricity deregulation in California to investment in Eastern Europe to human resource management in the technology industry.

A simple analysis with broad reach

Oliver Eaton Williamson—known as “Olly” to his friends, colleagues, and students—was born in Superior, Wisconsin on September 27, 1932. The son of two teachers, he formed lifelong friendships with his Superior Central High School Class of 1950 classmates, holding four reunions per decade and annual poker weekends. He received his B.S. in management from the Massachusetts Institute of Technology in 1955, an MBA from Stanford University in 1960 and a PhD from Carnegie Mellon University in 1963.

Williamson began his teaching career at Berkeley, where he was an assistant professor of economics in the undergraduate program. In 1965, he moved to the University of Pennsylvania, where he taught and held various leadership roles until he joined the faculty at Yale University in 1983.

Berkeley Haas Prof. Emeritus Pablo Spiller said that when Williamson recruited him to the economics department at Penn 40 years ago, “I didn’t realize that he was also recruiting me to his view of economics. The latter was done in subtle and not so subtle ways: his penetrating questions at seminars, written comments on papers, remarks in conversations, or over dinner,” he said. “While naturally a shy person, Olly was not shy to help a colleague see the light.”

In 1988, Berkeley lured Williamson back by appealing to his interdisciplinary interests and offering him appointments in not only business and economics but also the law. While at Berkeley, Williamson created a world-renowned PhD workshop known today as the Williamson Seminar on Institutional Analysis. He retired from teaching in 2004.

Williamson’s work on new ways of analyzing markets and business enterprises evolved from a paper written in 1937 by Ronald Coase, also a Nobel laureate. Building on Coase’s work, Williamson studied economic organization through the lens of transaction costs, exploring how different attributes of transactions were better suited to different types of organizations. It helped explain why some companies grow, creating management structures controlling different areas, while others remain independent.

“I originally thought of ‘make-or-buy’ as a stand-alone problem,” Williamson once said. “But now I think of it as being an exemplar. If you understand make-or-buy, which is a simple case, you can understand more complex cases.” These include joint ventures, labor contracts, antitrust, and industry privatization. Hundreds of economists and policymakers have since applied his framework to situations other than outsourcing, including the boundaries between public and private sector activity.

Path-breaking books

Williamson’s contributions to economics were widely recognized through awards, fellowships, and no fewer than 11 honorary doctorates from universities worldwide. Two of Williamson’s five books, Markets and Hierarchies: Analysis and Antitrust Implications (1975) and The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting (1985) are said to be among the most cited in the social sciences.

The Nobel Prize, which Williamson shared with political scientist Elinor Ostrom of Indiana University, marked the apogee of his career. The award—the second Nobel Prize for a Haas economist—came at the height of the global economic crisis. Many observers speculated that Williamson was selected for his work’s application to the financial meltdown and financial regulation. Those close to Williamson, however, said the honor was long overdue.

Prof. David Teece, the Thomas W. Tusher Professor in Global Business, predicted a Nobel for Williamson when he read a draft manuscript of Markets and Hierarchies as a University of Pennsylvania PhD student in 1974.

“I returned to his office three days later and reported, ‘This is a great book. Why has it taken me four years at Penn to discover a framework that addresses deep questions about the business firm and its organization?’” recalls Teece, noting that before Williamson, the economic frameworks and models to understand the business enterprise were “quite frankly pathetic.”

Teece went on to publish collection of essays in honor of Williamson’s book Markets and Hierarchies, entitled Firms, Markets and Hierarchies: The Transaction Cost Economics Perspective, with Glenn R. Carroll in 1999.

Prof. Steve Tadelis, the Sarin Chair in Leadership and Strategy, said Williamson’s work had heavily influenced him as a graduate student and assistant professor at Stanford. They had met and developed a collegial friendship by the time Tadelis joined Berkeley Haas in 2005, eventually authoring two papers together.

“Olly’s relentless drive for uncovering deep insights has always been an inspiration for me,” Tadelis said. “I will deeply miss his intellectual enthusiasm and friendly disposition, and at the same time I feel a deep gratitude for having him be a friend and mentor.

In recognizing Williamson and his work, the Royal Swedish Academy of Sciences singled out “his analysis of economic governance, especially the boundaries of the firm.”

In an interview upon learning he had won the prize, Williamson said. “All feasible forms of organization are flawed. We need to understand the trade-offs that are going on, the factors that are responsible for using one form of governance rather than another, the strengths and weaknesses that are associated with each of them.”

A passion for Berkeley

Throughout his life, Williamson displayed an uncommon humility even as his celebrity in economic circles grew. Just hours after his Nobel Prize was announced, Williamson was modest about his selection, calling it “undeserved” during a congratulatory toast with hundreds of Haas faculty, staff, and students.

“I would describe myself,” he told the packed room, “as a conscientious teacher who had a lot of students who were tolerant and went on to do good work.”

Williamson was also passionate about Berkeley, calling it a “glorious place” whose commitment to excellence generates “extraordinary energy.” He donated a large portion of his Nobel Prize to Berkeley Haas to create a new endowed faculty chair in the economics of organization. (The Oliver E. and Dolores W. Williamson Chair of the Economics of Organizations is now held by Prof. John Morgan.)

The Haas School also established its highest faculty honor, the Williamson Award, in his name. Williamson was known for embodying the school’s Defining Leadership Principles—Question the Status Quo, Confidence Without Attitude, Students Always and Beyond Yourself.

“I can still hear a piece of advice he gave me when I first became dean that served me on many occasions: ‘When in doubt, decide on the merits,’ Lyons said. “With his own doctoral students, if they expressed doubt in themselves when taking the next step, he would tell them ‘I wouldn’t have suggested you try to do this if I didn’t have confidence that you could.’”

Williamson is survived by his five children and five grandchildren: son Scott (Susanna Krentz), daughter Tamara (Don Mohr), daughter Karen (Robert Indergand), son Oliver Jr. (Anna Suszanowicz), and son Dean (Mihoko Matsue); and grandchildren Kimberly and Kristin Indergand, Claire and Peter Williamson, and Erin Mohr. He was equally proud of his niece, Katherine Frisbie, and nephew, Steven Frisbie (Jennifer). He was predeceased by his wife of 55 years, Dolores Celini Williamson, in 2012.

A family memorial service will be held at a later time. Those wishing to remember Williamson may do so by making a donation to the Northern California and Northern Nevada Alzheimer’s Association.

Downloadable photos of Oliver Williamson are available here: https://haas.canto.com/v/oliverwilliamson

The Society for Institutional and Organizational Economics, which Williamson co-founded, will be posting a series of short essays honoring his contributions and life: https://www.sioe.org/news/passing-oliver-williamson.

How the slave trade’s financial legacy harms Africans today

February 28, 2020|By Mickey Butts

The global trade in enslaved people is directly linked to distrust in Africa’s financial system.

Elmina Castle and Fortress in Ghana was a center of the West African slave trade. (Photo: M.Torres for Getty Images)

Nearly two-thirds of Africa is “unbanked” and has no relationship with a financial institution—one of the highest rates in the world, according to the World Bank. The rapid rise of mobile money sent through smartphones is steadily boosting financial inclusion across the continent, but the lack of access to traditional banking accounts and loans is depriving millions of Africans of the ability to save and borrow money they could use to start a business or move to a neighborhood with better schools.

This poor access to financial services has a multiplier effect far beyond savings and lending, affecting everyday life including employment options, says Berkeley Haas Prof. Ross Levine. “How well the financial system operates can shape an individual’s overall socioeconomic horizon, even if that person never takes out a loan,” he says.

Many scholars have looked at the myriad reasons for the lack of financial inclusion in Africa, ranging from poverty to the effects of colonialism. In the first study of its kind, forthcoming in The Economic Journal, Levine and two coauthors have pinpointed another important factor: The devastating impact of the global slave trade that gripped Africa most intensely from 1400 to 1900.

Broken trust

When Africans were captured from their villages and sold into lives of toil in faraway countries—often by other Africans who sold enslaved people to Europeans, Arabs, and Indians—the trust of those who remained in their neighbors and in institutions fundamentally broke down. The fact that this distrust could linger so long after slavery faded was a surprise to Levine. “I would have thought that institutions, social coherence, and trust would have had plenty of time to emerge once the slave trade ended,” he says.

To measure the connection between the African slave trade and trust in financial institutions, Levine and his colleagues analyzed data about the intensity of slave trading within 51 countries as well as within 186 ethnic groups. To isolate the effect of the slave trade, the researchers controlled for a number of factors that could have influenced the results, such as a country’s legal system and how long it has been independent, as well as individual-level factors such as education, income, and age of the population.

The study showed a strong, negative correlation between the intensity of a country’s historical exposure to the slave trade and the rate that households currently own or use an account or debit card at a bank or other formal financial institutions; save money at formal financial institutions; obtain short-term loans, credit cards, or mortgages from banks; and use the internet or mobile phones to make financial transactions. They also cross-checked the country-level results with results by ethnic group, finding that ethnicities with higher rates of enslavement also had higher rates of mistrust in the financial system.

To quantify the magnitude of the effect, the researchers examined a hypothetical scenario in which one group of countries that had a relatively higher intensity of slave trading (such as Sierra Leone, Malawi, Ethiopia, and Guinea) suddenly became much more like countries that had a relatively lower intensity of slave trading (countries such as Burundi, Zimbabwe, Niger, and South Africa). In that scenario, the probability that the average person would have saved at a bank, received a bank loan, or made a transaction with a mobile money account would have increased by 50%. In a continent with a low starting point for participation in the financial system, that represents an increase in financial inclusion of millions of Africans.

Wide variation in financial participation

Along with the high-level macroeconomic impacts, the study showed considerable variation across countries in the real world:

Credit card use in Mauritius and South Africa—where the slave trade was less intense—was greater than 16%, while it was below 0.5% in Madagascar, Sudan, and Ethiopia, where people were sold into slavery at relatively higher rates.
In Mauritius, where the slave trade was negligible, only 0.3% of the respondents indicated a lack of trust in banks.
More than 16% of those surveyed had received a loan in the last year in Botswana and Mauritius, which largely escaped the slave trade, while less than 2.5% of survey respondents received a loan in the last year in Guinea, which had a much more intense slave trade. However, loan rates did not match the intensity of slave trading in several other countries (Niger had far lower loan rates than Uganda, though slave trading rates were similar).

All this data shows something else beyond the numbers. “Factors that influence culture have a very long-run, enduring effect on communities,” says Levine. “Culture exerts a first-order impact on many of the economic outcomes that people care about.”

That insight offers some hard lessons for financial services businesses and policymakers, since trust is vital for finance to work, says Levine. Putting your money in a bank involves a certain trust that the legal system and the government are going to properly safeguard your money. Similarly, financial institutions must be able to trust that a loan recipient will pay them back. Without trust, the cost of enforcing every single contract would become overwhelming and reduce the overall availability of credit, and therefore limit economic growth and opportunity.

“Establishing trust is important for financial services companies everywhere, but it is much more difficult to create that trust in countries that had a more brutal experience with slavery.”

Criminal punishment is harshest in racially diverse counties, study finds

February 25, 2020|By Dylan Walsh

With 5% of the world’s population and 25% of its prisoners, the United States is the most punitive country in the world. Among developed countries, the disparities are even more striking: The U.S. relies on incarceration for 70% of criminal sanctions, while in Germany, it’s 6%.

Why is the U.S. system so harsh?

A new paper by Asst. Prof. Conrad Miller and Benjamin Feigenberg of the University of Illinois at Chicago reveals how diversity, often celebrated as one of America’s foundational assets, might also help explain the punitive nature of its criminal justice system. The paper also offers new insight on the system’s disparate impact on African Americans, who are incarcerated at six times the rate of whites and face longer sentences for similar crimes.

Punishment varies widely between counties

The researchers split their investigation into two steps, looking first at whether punishments differ between counties. They collected county-level data over several years on every criminal arrest in four states—Alabama, Texas, Virginia, and North Carolina. Did the arrest lead to charges? Did the charges lead to formal sentencing? Did the sentence involve jail or prison time? Even when controlling for factors like age, race, and criminal record, they found dramatic variation in how different counties punish the same crime.

“People arrested in the top 25% of counties that are most punitive are two- to four-times as likely to be sentenced to jail or prison than someone who has committed the same offense in one of the most lenient counties,” says Miller, a labor economist and research fellow at the National Bureau of Economic Research whose research focuses on hiring and discrimination. “There is this huge difference in outcomes, even in the same state, with the same laws on the books.”

Diverse counties more punitive

Next, the researchers investigated a potential explanation for this variation. Prior research shows more diverse locales tend to be relatively miserly with social benefits. The underlying theory suggests that people in racially homogenous places are more willing to pay taxes into social welfare because the beneficiaries are likely to look like them, to be a part of their “in-group.” Perhaps individual preferences around punishment reflect the same bias, they theorized, and punishment is lighter in counties where prospective defendants are likely to be of the same race.

This is precisely what they found. Arrests in jurisdictions that were predominantly white or predominantly black were least likely to result in a jail or prison sentence. The severity of punishments climbed as counties grew more diverse and peaked in jurisdictions roughly that were about 30% black. (Though Miller and Feigenberg looked primarily at black-white racial divides, they noted that some Texas counties with large Latino majorities were among the most lenient.)

Reflection of voter preferences

In theory, at least, this presents a simple fix. “Our results suggest that if all jurisdictions within these four states adopted the policies of the most homogenous jurisdictions, then overall confinement rates would decline by about 15%,” Miller says — a significant figure considering the four states they study comprise roughly 20% of all prisoners confined by states. But how, practically, to make this happen is complicated.

In Miller’s view, the fact that racially diverse counties tend to be most punitive is likely a reflection of voter preferences, for which there is no policy fix. County residents vote prosecutors and judges into office, and these office-holders, in turn, strive to represent the will of their constituents. In racially diverse counties, that means prosecutors push for harsher charges—felony rather than misdemeanor, for example—and judges impose stiffer sentences—prison rather than probation or community service.

No simple fix

These findings also complicate efforts to reduce racial disparities in the U.S. criminal justice system. It would seem that, at least within the states Miller studied, these disparities are in part a result of how populations are distributed. It is more common for large populations of whites to live in overwhelmingly white counties, thereby exposing criminal defendants to relatively lenient systems. Large populations of blacks, on the other hand, tend to live in more racially diverse areas, like Houston, which ends up exposing them to more severe sanctions. In this way, racially unequal punishment is embedded in the geographic spread of populations.

One potential solution, Miller says, is to loosen the bond between voters and prosecutors and judges. That local courts are so tied to local preferences is a peculiar feature of the U.S. criminal justice system, and one that could be changed. Other countries provide models. Still, Miller couldn’t avoid a bit of pessimism when dwelling on the practical takeaway of the work.

“Perhaps there is some kind of broad kumbaya story: If we all had the right interactions at the right point in our lives we wouldn’t think about ‘in groups’ and ‘out groups’ in this particular way,” he says. “But, given the overall results, it’s not clear what the narrow solution to this problem is.”

The paper, “Racial Divisions and Criminal Justice: Evidence from Southern State Courts,” has been conditionally accepted to American Economic Journal: Economic Policy.

What are stable coins? Cryptocurrency Q&A with Rich Lyons

February 5, 2020|By Sam Zuckerman

Cryptocurrencies are not investments for the faint of heart. As anyone who has followed the Bitcoin saga knows, the rollercoaster price movements of these digital assets are only for those with strong stomachs (or who want to conceal their transactions). In recent years, however, a new form of cryptocurrency has emerged with the promise of much less volatility. So-called stable coins, such as Tether, the stable coin market leader, are pegged one-to-one to the U.S. dollar or other asset, in theory making them safer.

Berkeley Haas News spoke to Rich Lyons, professor of finance and economics who served as Haas dean from 2008 to 2018 and is now UC Berkeley’s first chief innovation and entrepreneurship officer, about this new wrinkle in cryptocurrencies. Lyons, an expert in currency exchange rates who holds the William & Janet Cronk Chair in Innovative Leadership, recently co-authored a paper with Ganesh Viswanath-Natraj of England’s Warwick Business School examining what keeps stable coins stable.

Among their conclusions: Stable coins could open the door to the wider crypto world without the wild price swings of free-floating cryptocurrencies like Bitcoin. Even so, as Lyons stresses, stable coins are not necessarily the safe havens they are advertised to be.

If you look at a price chart of Bitcoin over the past few years, it looks like a trek through the Himalayas, with enormous peaks and valleys. Why are cryptocurrencies so much more volatile than traditional currencies?

We can answer that question by thinking about the dollar-euro exchange rate, which is more volatile than people originally thought it would be. The issue is that the euro’s fundamental value is a difficult thing to pin down, leaving a lot of room for speculation. Instability like that gets magnified in the world of cryptocurrency. At the end of the day, the Bitcoin-dollar exchange rate is just another exchange rate, and a lot of those same speculative dynamics are there.

But why are Bitcoin’s price movements so much greater than those of traditional currencies?

The big issue is that the fundamental value of Bitcoin is even more nebulous than that of the euro. We can at least start to think about the fundamentals of the dollar-euro exchange rate, like the growth rate in Europe versus the U.S. With a cryptocurrency like Bitcoin, the fundamental picture is much harder to pin down. You have the same speculative dynamics as in a regular currency market, but with much fuzzier fundamentals.

What exactly are cryptocurrencies?

Over the past five-to-ten years, what some people are calling the digital asset economy has emerged. The digital asset economy lies outside the traditional banking system and is generally housed on a blockchain, which is a secure, decentralized electronic ledger used to record transactions. The digital asset economy includes cryptocurrencies like Bitcoin and so-called initial coin offerings. These assets serve multiple purposes. For example, I could issue 100 tokens, and by buying one, you could own one one-hundredth of a work of art. We can break up lumpy assets and give people ownership of small slices. In addition, this digital asset economy gives people in countries that might not be able to hold assets because of capital controls or other restrictions access to more of the world’s assets.

What’s the purpose of stable coins?

Because this digital asset economy is largely outside the traditional banking system, the issuers and traders of these assets aren’t like regulated financial institutions. They don’t have “know-your-customer” rules or anti-money-laundering regulations. At first, this digital asset economy lacked a store of value, that is, assets with relatively low volatility that people could hold knowing the value wouldn’t change drastically. Because Tether and other stable coins are pegged to traditional currencies, they have become stores of value in that alternative financial world that otherwise lacks a store of value.

Prof. Rich Lyons (Photo Copyright Noah Berger)

Haven’t stable coins been controversial?

Yes. For example, there was a question of whether the issuers of Tether were manipulating the price of Bitcoin. Part of the reason that scenario is possible is that Tether is used as the medium of exchange in over 50% of Bitcoin transactions. When people are buying and selling bitcoins, more often than not they are trading tether for bitcoins. One reason is that when you go from dollars to bitcoins, you are also going from inside to outside the banking system. That has high transaction costs. Tether is already outside the banking system, which makes it a much cheaper and more frictionless way to go in and out of Bitcoin.

Most people see the cryptocurrency world as pretty wild and woolly. Are stable coins as safe as claimed?

Tether is pegged to the dollar at one-to-one, and its price has generally traded within 1% of one-to-one. But about a year-and-a-half ago, there was some concern in the market that Tether was not backed one-to-one with assets; i.e., if there was a mass redemption of Tether, the collateral would not be sufficient to cover the full amount. This concern led the price to fall as low as 95 cents to the dollar. There was an audit, which was not 100% transparent, but it did restore confidence in the marketplace.

What kinds of questions should we be asking about stable coins?

Stable coins come in a number of different flavors. Some purport to be 100% backed by redeemable collateral that’s in escrow, collateral that can’t be captured and run away with. But part of the question, even with Tether, is whether it really is 100% collateralized. And is all that collateral really liquid? If you have to sell in fire-sale conditions, even a “100% collateralized” asset may not turn out genuinely to be 100% collateralized.

What are the long-term prospects for stable coins and cryptocurrencies generally?

There will be a lot of shakeout. The stable coins that have the greatest market confidence concerning the legitimacy and liquidity of their collateral will win out. Meanwhile, if you think about the literally thousands of initial coin offerings, all the tokens, all the cryptocurrencies—90% of them will be valueless in 10 years, in my judgment.

In a shakeout scenario, do stable coins have an advantage?

Most stable coins have collateral. So, if a stable coin fails, it won’t be a complete cataclysm. Whatever collateral is left after liquidation costs will go to the holders. But, when you talk about cryptocurrencies that don’t have any collateral—the Bitcoins and ICOs that don’t have any fundamental value backing them—when those go away, their value goes to zero. I’m not predicting that Bitcoin will necessarily go to zero, but certainly there are a lot of assets in the digital economy that will go to zero over the next 10 years. At the same time, you’re seeing assets in the digital economy that are getting 10 times the valuation they had two years ago. You’ve just got to be in the right place. And it’s anybody’s guess what the right place looks like.

How are cryptocurrencies in general and stable coins in particular evolving?

This idea of inside the banking system versus outside the banking system—that’s a pretty bright line right now. But when central banks move into the digital asset world, the line won’t be as clear. A well-functioning stable coin adds a lot of value, and all of the big central banks are doing a lot of research on cryptocurrencies. Many of them are saying they will launch a digital currency in the next five years. My prediction is in 10 years we will have three or four important stable-coin digital currencies, based in blockchain, and issued by central banks. They will live more in the traditional regulated banking system. That will fill in the continuum.

You and Ganesh Viswanath-Natraj just released a paper titled “What Keeps Stable Coins Stable?” What questions were you looking at?

We wanted to look at how tightly the price of Tether was pegged to the dollar. What we found was somewhat surprising. Tether trades at both a discount and a premium to the dollar. You might think a stable coin would trade like the Argentine peso in the early 2000s, when the peso was pegged to the dollar. But people didn’t have full confidence that the Argentine central bank would support the peso, so the peso consistently traded at a discount, sometimes substantially so.

What might explain Tether trading at a premium to the dollar?

There is this vehicle currency demand that can cause Tether to trade at a premium. If I as an investor can get into Bitcoin by either using dollars or Tether, but it is expensive to get into Bitcoin using dollars because transaction costs are higher, than I’d much rather buy bitcoin using Tether because it gives me a near costless option for getting into Bitcoin whenever I want. That “vehicle-currency demand” for Tether is what pushes its price above one US dollar.

Study shows the social benefits of political incorrectness

September 5, 2019| by Laura Counts

New Berkeley Haas research sheds light on the psychology of politically incorrect speech—and why it’s so effective

When Rep. Alexandria Ocasio-Cortez refers to immigrant detention centers as “concentration camps,” or President Trump calls immigrants “illegals,” they may take some heat for being politically incorrect. But using politically incorrect speech brings some benefits: It’s a powerful way to appear authentic.

Researchers at UC Berkeley’s Haas School of Business found that adding even a single politically incorrect word or phrase in place of a politically correct one—”illegal” versus “undocumented” immigrants, for example—makes people view a speaker as more authentic and less likely to be swayed by others.

“The cost of political incorrectness is that the speaker seems less warm, but they also appear less strategic and more ‘real,’” says Asst. Prof. Juliana Schroeder, co-author of the paper, which includes nine experiments with almost 5,000 people and is forthcoming in The Journal of Personality and Social Psychology. “The result may be that people may feel less hesitant in following politically incorrect leaders because they appear more committed to their beliefs.”

Cuts across party lines

Although politically correct speech is more often defended by liberals and derided by conservatives, the researchers also found there’s nothing inherently partisan about the concept. In fact, conservatives are just as likely to be offended by politically incorrect speech when it’s used to describe groups they care about, such as evangelicals or poor whites.

“Political incorrectness is frequently applied toward groups that liberals tend to feel more sympathy towards, such as immigrants or LGBTQ individuals, so liberals tend to view it negatively and conservatives tend to think it’s authentic,” says Berkeley Haas PhD candidate Michael Rosenblum, the lead author of the paper (the third co-author is Francesca Gino of Harvard Business School). “But we found that the opposite can be true when such language is applied to groups that conservatives feel sympathy for—like using words such as ‘bible thumper’ or ‘redneck’.”

The researchers asked participants of all ideological backgrounds how they would define political correctness. The definition that emerged was “using language or behavior to seem sensitive to others’ feelings, especially those others who seem disadvantaged.” In order to study the phenomenon across the political spectrum, they focused on politically incorrect labels, such as “illegal immigrants,” rather than political opinions, such as “illegal immigrants are destroying America.”

That allowed them to gauge people’s reactions when just a single word or phrase was changed in otherwise identical statements. They found that most people, whether they identified as moderate liberals or conservatives, viewed politically incorrect statements as more authentic. They also thought they could better predict politically incorrect speakers’ other opinions, believing in their conviction.

The illusion of being easily influenced

In one field experiment, the researchers found that using politically correct language gives the illusion that the speaker can be more easily influenced. They asked 500 pre-screened pairs of people to have an online debate on a topic they disagreed on: funding for historically black churches. (The topic was selected because it had a roughly 50/50 split for and against in a pilot survey; no significant difference in support and opposition across political ideology; and involved both a racial minority and religious beliefs.) Before the conversation, one partner was instructed to either use politically correct or incorrect language in making their points.

Afterwards, people believed they had better persuaded the politically correct partners than the politically incorrect partners. Their partners, however, reported being equally persuaded, whether they were using PC or politically incorrect language. “There was a perception that PC speakers were more persuadable, though in reality they weren’t,” Rosenblum said.

Although President Trump’s wildly politically incorrect statements seem to make him more popular in certain circles, copycat politicians should take heed. The researchers found that politically incorrect statements make a person appear significantly colder, and because they appear more convinced of their beliefs, they may also appear less willing to engage in crucial political dialogue.

View the full study:

Tell it like it is: When politically incorrect language promotes authenticity

(forthcoming in The Journal of Personality and Social Psychology)

Winning coaches’ locker room secret

August 15, 2019| by Michael Blanding

In an analysis of hundreds of basketball half-time speeches, Berkeley Haas Professor Emeritus Barry Staw and colleagues found that anger goes farther than inspiration.

It’s a staple of every sports movie: The team is down at the half, and the coach gives an inspirational locker room speech—think Gene Hackman in Hoosiers, Billy Bob Thornton in Friday Night Lights—leading the team to come roaring back to victory. But do pep talks really work?

In a new paper published in the Journal of Applied Psychology, Berkeley Haas Prof. Emeritus Barry Staw and two colleagues, Katherine DeCelles and Peter de Goey, test that question where it counts: the basketball court. Their analysis of hundreds of half-time speeches and final scores from high school and college games found that coaches do better when they shelve the happy talk and bring down the hammer.

In fact, the researchers found a significant relationship between how negative a coach was at half-time and how well the team played in the second half: The more negativity, the more the team outscored the opposition. “That was even true if the team was already ahead at halftime,” Staw says. “Rather than saying, ‘You’re doing great, keep it up,’ it’s better to say, ‘I don’t care if you’re up by 10 points, you can play better than this.’”

This is not the first time Staw has studied basketball. In previous research, he found that NBA coaches were more apt to use expensive draft picks in games—regardless of how well they played—just because they’d paid more for them. Sports, he says, can provide a clear and objective playing field on which to examine behaviors that might not be evident elsewhere.

“In business, there are so many external events and economic factors that it is hard to figure out what is causing organizational performance,” Staw says. “For example, one cannot easily study certain things like the effect of CEO emotions, unless you could convince CEOs to let researchers tape their boardroom talks and office interactions—and even then it would be difficult to figure out whether there are effects on organizational performance.” In basketball, on the other hand, the outcomes are easier to interpret and more definite: the score of your team vs. the opposition.

Analyzing coaches’ emotional expression

The researchers gathered the information for their study by contacting more than 50 coaches for high-school and college basketball teams in Northern California, asking if they could record their half-time locker room talks. Sometimes getting agreement took some doing. “Coaches regard the locker room as their inner sanctum—so it was kind of an achievement just to get the tapes,” he says. One coach dropped out halfway through the study, out of superstition: “The coach complained that every time we taped the game, they lost,” Staw said.

In the end, Staw and his colleagues were left with speeches for 304 games played by 23 teams. They trained coders to rate each halftime talk on the extent that coaches expressed various emotions, ranging from positive (pleased, excited, relaxed, inspired) to negative (disgusted, angry, frustrated, afraid).

Negative speeches can be motivating—up to a point

The results showed two basic effects of coaches’ emotional expression at halftime. First, there was a strong and clear relationship between negative half-time speeches and higher scores in the second half. That is, expressing negative emotion at halftime helped teams perform better in the second half. However, at the most intense end of negative expression, the researchers found somewhat of a reversal of the effect. “We’re talking Bobby Knight–level, when you’re throwing chairs,” Staw says, a reference to the notoriously volatile former Indiana University coach. That is, extremely negative expressions of emotion can impede performance.

The researchers also conducted a controlled laboratory experiment, in which they played selected pep talks for participants, and asked them how motivated or unmotivated they felt after hearing them. Again, Staw, DeCelles, and de Goey found that negative speeches could have a motivating effect, but that the effects of such negativity turned downward rather quickly. In other words, the results showed a more traditional bell curve, where motivation dropped off when the coaches became too angry or too negative.

Not a “license to be a jerk”

Staw notes that in the psychology of leadership, the trend has been to emphasize the idea of “positive affect” driving people to greater performance. A smaller strand of research, however, has surmised that at least in the short term, negative emotion might actually push people to greater effort.

Staw and his colleagues conclude that negative emotion can be underrated as a motivational tool. By expressing anger or dissatisfaction, a leader signals to followers that their performance is not at the level where it should be, potentially driving them to greater effort. “We sometimes strip content from emotion, treating it as simply positive or negative expression, but emotion often has a message carried along with it that causes people to listen and pay attention, as leaders try to correct or redirect behavior,” Staw says.

In a business context, Staw, DeCelles, and de Goey caution against applying the findings too liberally—prolonged negative feedback can lead to demoralized employees. However, in some short-term instances, getting a boost in performance is critical, and the situation may parallel the do-or-die moment at half-time in a basketball game, where expressing anger and disappointment can lead a team to renewed effort and improved results.

“Our results do not give leaders a license to be a jerk,” Staw says, “but when you have a very important project or a merger that needs to get done over the weekend, negative emotions can be a very useful arrow to have in your quiver to drive greater performance.”

How opioid use spreads in families, worsening crisis

August 6, 2019| by Krysten Crawford

Berkeley Haas researchers have identified another driver of the opioid epidemic in the United States: family ties.

In a new study published in American Sociological Review, Asst. Prof. Mathijs de Vaan and Prof. Toby Stuart show that the likelihood of someone using opioids increases significantly once a family member living in the same household has a prescription. They also find that the chances of a relative obtaining a prescription for opioids within a year after a relative they live with gets one rises by 19 percent to over 100 percent, depending on family circumstances. Individuals from low-income households, for example, are the most likely to secure their own prescription after a family member does.

The study is one of the few analyses of the opioid crisis that finds a causal link between a specific action—in this case, the introduction of painkillers into a home—and their growing use. In all, de Vaan and Stuart analyzed hundreds of millions of medical claims and almost 14 million opioid prescriptions written between 2010 and 2015 and contained in a database operated by the state of Massachusetts. They were able to track family members’ health care through shared medical insurance policy numbers.

“Our research finds huge effects on the likelihood that family members who are influenced by other family members will start using opioids,” says de Vaan, a sociologist who studies social networks.

“Social contagion”

De Vaan and Stuart, who holds the Leo Helzel Chair in Entrepreneurship and Innovation at Haas, suggest two reasons for this contagion: when a family member takes painkillers, other relatives in the home observe firsthand its effects. Patients also typically receive more pills than they need, which means relatives may be tempted to experiment with leftovers sitting in the medicine cabinet.

Family members’ exposure to painkillers then increases the likelihood that they will visit a doctor within a year and obtain their own prescription. Other research has shown that Americans are more willing to ask for—and receive—specific treatments than consumers in other countries.

Because of this, de Vaan and Stuart offer a new insight into the role of physicians in the opioid epidemic. While it’s long been believed that physicians who work in the same community or are connected in other ways rely on each other for advice and adopt similar forms of treatment, the authors show that the explosion in opioid prescription rates may be coming from patients, too.

“The actions of one doctor toward one patient affect the requests that that patient then makes of other doctors he or she visits,” says de Vaan. “We find that physicians are not only influencing each other directly when it comes to opioid prescriptions. They’re influencing each other by steering patient demand.”

A causal link

Sociologists have long studied the role that social networks have on people’s health. Smoking and alcohol use are two prominent examples of habits families often share.

The problem with research into social contagion is that most of it identifies correlations, but can’t establish cause and effect. It’s possible that other factors—like genetics or the tendency for people to marry others like them—come into play, too.

De Vaan and Stuart, however, were able to establish a causal link between opioid prescriptions and an increase in the drug’s use within families. They did this by narrowing their research to emergency room visits only, where patients are randomly assigned to doctors who prescribe opioids at vastly different rates—so the likelihood that one patient received a painkiller prescription over another was random. The experiment also eliminated the possibility that family members who later got a prescription got one from the same doctor or that family members were visiting the same provider, such as a primary care physician.

Finding prevention methods that work

De Vaan and Stuart suggest several steps to address the spread of opioid use within families. To prevent so-called “doc shopping,” states that track prescription drug use and make that information available to doctors could also include data on family members’ access to medications. To avoid violating the privacy of relatives, de Vaan says the program could simply issue a “risk” score that would signal to doctors that their patient has been indirectly exposed to painkillers at home.

Policymakers could also expand upon existing efforts to collect leftover prescription drugs—namely through National Prescription Drug Take Back Day—by paying people to return their excess supply. The upfront costs would likely be offset by the money saved in addiction treatment and other costs, de Vaan says. Doctors should also be trained on how to push back when patients ask for painkillers.

“We’ve identified a specific driver of opioid consumption, so all of these steps make a lot of sense,” de Vaan says.

How the stock market is fueling the wealth gap: Q&A with Prof. Martin Lettau

June 26, 2019| by Sam Zuckerman

The stock market’s recent rise reflects a dramatic shift in wealth from workers to investors, according to new research by Prof. Martin Lettau

In decades past, a rising stock market was a reflection of economic growth. But no longer.

New research by finance Prof. Martin Lettau has found that economic growth accounted for less than a quarter of the stock market’s rise over the past 30 years—compared with 92% of the increase in the prior three decades.

The biggest driver of the recent bull market? A dramatic shift in wealth from workers to investors, accounting for 54% of the market’s increase since 1989.

That’s the conclusion of Lettau’s new paper, “How the Wealth Was Won,” co-written with Daniel Greenwald of MIT and Sydney Ludvigson of New York University. They show that most of the stock market gains of the past three decades have come from shareholders getting a bigger and bigger piece of the economic pie.

Lettau’s research points to a potentially critical driver of the growing wealth inequality plaguing the U.S.: At a time of slowing economic growth, those at the top of the wealth distribution are reaping most of the rewards, while the share of income received by the rest of households has declined.

The research explores hot-button issues that are not the standard fare for financial economists. We spoke with Lettau, an expert in investments and financial markets who holds the Kruttschnitt Family Chair in Financial Institutions, about how the stock market has seized the lion’s share of 30 years of economic growth, and whether this trend is sustainable.

You write about a widening chasm between the stock market and the broader economy. What specifically are you referring to?

U.S. stock values have grown faster than the economy over the past 29 years. After adjusting for inflation, the stock market value of corporations outside the financial sector has risen an average of 8.4 percent a year since 1989. At the same time, the value of the economic output of corporations has climbed just 2.5 percent annually. By contrast, from 1959 to 1988, economic output was expanding faster than stock values.

What did you find was behind this trend?

We considered the entire economic pie that was produced and the different actors in the economy. We found that, over the long run, the movement in stock values stemmed largely from shifts in wealth from labor to capital. Put plainly, the long-standing bull market of past 30 years comes largely from the capital sector getting more of the economic pie than the labor sector.

How big a factor has this shift been in pushing stock prices higher, compared with other factors?

We looked at the factors that standard financial theory considers to be drivers of stock prices, including fluctuations in short-term interest rates, changes in investor tolerance of risk, and economic growth. We did a statistical analysis to measure how much each of these factors contribute to stock market valuations. We found falling interest rates and greater investor appetite for risk have each contributed 11%. Economic growth explains just 23% of the stock price increase. Meanwhile, we estimate that the reallocation of the rewards of production to shareholders and away from labor has accounted for a full 54% of the gains in stock market value since 1989. That’s a sharp turnaround from 1952 to 1988, when other factors accounted for just 8% of the rise in stock prices, while economic growth accounted for 92% of the increase.

Why has capital’s share of the pie grown and labor’s share shrunk?

Our work doesn’t directly address the underlying reasons why we’ve had these shifts. But there’s some work by labor economists that has come up with plausible explanations. One is the decline in union power, which has weakened labor’s voice in setting wages. Another is outsourcing, which moved work to cheaper domestic or international sources of labor, putting pressure on pay. Third is technology, which is replacing manual labor with intensive productive capital. Thirty years ago robotics barely existed. Now it’s everywhere. Well-educated workers reap the benefits, but those without the skills in demand today are left behind.

Inequality of income and wealth have become pressing concerns in recent years. What does your work tell us about the sources of inequality?

This is a very important question, not just in the United States, but in much of the developed world. What our work suggests is that part of increased inequality could be due to the stock market. The overall economic pie is growing, but not at very high rates. The segment of the population that owns stocks has reaped the benefits of this growth relative to those who don’t own stocks. And, while it’s true that more people hold stock today than in the past thanks to retirement investments like 401(k)s, stock ownership is still highly concentrated.

It’s striking that this shift has happened during a period of slowing economic growth—just 2.5% annually versus 4.5% in the prior period, you found. Meanwhile, the Congressional Budget Office (CBO) projects that real GDP over the next decade will grow just 1.7% annually. Is this trend sustainable?

Without fully understanding the economic forces that caused these trends in the postwar data, it is difficult to assess how they will evolve in the future. For example, technological changes are unlikely to be reversed, but other factors could be reversible. If the Congressional Budget Office’s projections for GDP turn out to be correct, and the growth of the total economic pie is sluggish, stock market investors will not see growth rates as in the recent past unless the labor share declines further. Since the end of the great recession, income growth has been robust and kept pace with corporate profits, but it is not clear whether this signals a short-term phenomenon or a change in long-term trends.

You’re bringing together two disciplines that are usually kept separate: financial economics and labor economics. What’s the significance of this?

Our contribution is to connect broad economic trends with the financial markets. We examined the overall economy because we have plenty of data. It would be useful to know on a more granular level who has benefited from the economic shifts we describe. But to do a deeper dive into household wealth is difficult because data is limited. There’s very little information on what kinds of households hold what kinds of assets.

How information is like snacks, money, and drugs—to your brain

June 19, 2019| by Laura Counts

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.”

*Assoc. Prof. Ming Hsu of the Haas Marketing Group*

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.”

How hedge funds use satellite images to beat Wall Street—and Main Street

May 28, 2019| by Laura Counts

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.

Berkeley Haas Assoc. Prof. Panos N. Patatoukas — *Berkeley Haas Assoc. Prof. Panos Patatoukas*

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.

Regulatory interest

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.”

Why women can’t negotiate away the gender pay gap

April 2, 2019| by Laura Counts

To mark Equal Pay Day, we’re featuring new work by Prof. Laura Kray, an expert on gender and negotiations, along with Margaret Lee, a postdoctoral research fellow with the Center for Equity, Gender, and Leadership. Equal Pay Day was created in 1996 by the National Committee on Pay Equity to mark extra days that American women would have to work, on average, to earn what male counterparts earned last year.

Professor Laura Kray has doubled down on helping women develop ace negotiation skills: She’s spent much of her career studying gender dynamics in negotiations, and has also taught many hundreds of MBA students and seasoned women executives how to negotiate like pros.

Prof. Laura Kray

But when it comes to strategies to close the stubborn pay gap that has women earning about 80 percent of what men earn (a statistic that varies by race/ethnicity and how it’s measured), she takes issue with telling women they can simply negotiate their way out of it. That not only puts the onus on women rather than the systemic issues that keep their salaries low, but it perpetuates stereotypes that may not be true, she said.

“We know that people who negotiate get more than those who don’t, but that’s not a ‘women’s issue’—two-thirds of men don’t negotiate,” said Kray, the Warren E. and Carol Spieker Chair in Leadership. “Women are asking, but they’re not always getting what they ask for, and they’re more likely to be told things that aren’t true.”

Kray has long peeled back the surface to look at the deeper structural issues that lead to gender inequality, from implicit bias to lack of transparency to inflexible mindsets. Recently, she’s uncovered a new front in the pay gap battle: team size. Kray and Margaret Lee, a postdoctoral research fellow sponsored by the Center for Equity, Gender, and Leadership (EGAL), are examining how deep-seated biases about leadership may lead to men being put in charge of larger teams than equally qualified women, and being paid more because of it.

Since supervising more people can be more work and indeed justify a higher salary, it’s important to unravel the reasons why men manage larger teams and how that drives higher salaries, she said. Combined with other findings, this new line of research offers another layer of insight into the causes of the gender pay gap—and possible solutions.

“We’re most interested in the structural issues, and the psychological processes of decision makers that produced them,” Kray said, at a recent EGAL presentation on her work with Lee.

Do women ask—and do they get?

Kray points to a 2017 study by McKinsey & Co. and Lean In that asked 70,000 respondents across 222 companies whether they had asked for a raise or negotiated for a promotion. While the percentages varied slightly by race, there were no significant differences between men and women overall.

She and Lee took a closer look at how this plays out among Berkeley Haas MBA students. Analyzing the results of a negotiation exercise completed by 346 MBA students who were asked to structure their own job offer, she found that the women did not sell themselves short, and asked for virtually identical base salaries as men.

In a more disturbing finding from a 2014 paper, Kray looked at the results of a sales negotiation exercise completed by pairs of 298 MBA students, where one acted as seller and one as buyer, with opportunities to lie or misrepresent the truth. Men reported they had lied to female partners in 24 percent of cases, versus just 3.4 percent of negotiations with another man—in other words, seven times as often. And although women reported lying less overall, they also were slightly more likely to lie to other women as to men.

Based on that and other experiments in the paper, Kray concluded that female negotiators are perceived as less competent and more gullible than male negotiators, which leads to them being lied to or manipulated more often—another reason why she believes the problem goes far beyond teaching women to negotiate.

“In this classroom simulation, MBA women were not getting the same treatment in negotiations, regardless of whether they were asking or not,” Kray said. “It’s important to explore if—and how—this plays out in organizational contexts.”

Team size and salary

In their new work, Kray and Lee looked at the results of a Berkeley Haas alumni survey of almost 2,000 full-time professionals who graduated between 1994 and 2014. Respondents had between two and 18 years post-MBA work experience, with an average of seven years. The researchers found that while men’s base salaries were about 8 percent higher than women’s, it’s in the extras—bonuses, share values, and options, which tend to not be tracked as publicly as salaries—where the men’s salaries dwarfed the women’s. These MBA women’s overall compensation averaged about $290,000, or about 66 percent of men’s $439,000 average.

That echoes findings from a recent study by the Forté Foundation, revealing that the salary gap is even higher for MBA women than for women overall (and highest for minority women), and that it only increases with seniority. A 2010 study of Chicago Booth MBA grads found a similar result: thirteen years out, women earned 56 percent of what men earned overall (they traced a large part of that to the career interruptions of motherhood, but found at least 10 percent of it to be unexplained).

Analyzing the Berkeley Haas alumni survey, which contained information on direct reports, Kray and Lee became interested in whether team size is contributing to pay disparities.

They compared the number of subordinates men and women reported managing and found men averaged 11 direct reports while women averaged six. After controlling for multiple factors such as experience and industry, that was reduced to an average of 10 for men and slightly less than 8 for women, but still significant. They then conducted further analysis parsing out team size from salary, and concluded that team size did account for a portion of the pay gap—above and beyond other individual job characteristics.

The researchers then delved further into why men are given larger teams. They conducted surveys of Berkeley Haas undergraduates, and also of subjects recruited through an online platform, and found no differences in men’s and women’s preferences on the number of people they’d feel comfortable managing. Even so, both groups said they preferred male managers for large teams, and female managers for smaller teams.

In another study, they found that people were more likely to associate stereotypically male attributes (e.g. assertive, forceful, aggressive, demanding) with leaders of larger teams, and associate stereotypically feminine attributes (e.g. patient, polite, kind) with leaders of smaller teams. They also found that people do believe that leaders of large teams earn more than leaders of small teams.

Kray and Lee are now more deeply pursuing research on why a team-size bias exists—based not only on stereotypes of who is a more appropriate leader but also on how complex and challenging the jobs of leading teams of various sizes are believed to be. The ultimate goals is to examine how implicit biases about team size justify part of the difference in men’s and women’s pay, and especially the gap that widens with seniority.

What can women do?

In the meantime, Kray—who also serves as faculty director for EGAL—advises women entering a job negotiation to pay close attention not only to their salary and bonuses, but also to how many direct reports they’ll be managing.

“For women who are aiming to maximize their earnings, it is important to make sure they have the headcount to justify what they’re asking for,” she said. “My advice for these aspiring women is: Don’t overlook team size as a factor that could make a difference in your paycheck, especially in the long run.”

EGAL Founding Director Kellie McElhaney said Kray and Lee’s new research is exactly the type of work she wanted the center to support when it launched in 2017.

“This works on two critically important paths: Dispelling long-held and damaging myths that are used to justify inequitable behavior, like unequal pay, and introducing new explanations that need further research, like team size,” McElhaney said.