Why you may be cheating yourself out of deeper social connections

Intentionally blurred image shows a fast-moving crowd of commuters with two people standing in the middle
Photo credit: Gremlin for iStock/Getty Images

Former U.S. Surgeon General Vivek Murthy named loneliness as the most significant preventable disease in the country. And the pandemic-driven mental health crisis has underscored the consequences of social isolation.

Yet in everyday life, most of us make a habit of cutting off conversations with new acquaintance after a few minutes of polite chatter—whether it’s on an airplane, at a conference, or at a cocktail party.

This tendency to cut things short not only runs counter to our own best interests, but it’s based on fundamentally mistaken beliefs about conversation and relationships, according to a new study co-authored by Juliana Schroeder, a Berkeley Haas associate professor and Harold Furst Chair in Management Philosophy and Values.  The study is forthcoming in The Journal of Personality and Social Psychology.

“All close friendships begin with a conversation between strangers,” said Schroeder. “The more you talk with someone, the more you know about them, and the more you potentially have to talk about.”

Yet that’s the exact opposite of people’s intuition: Most people are convinced that they will run out of things to say pretty quickly, so they end the conversation before it runs dry, the study found.

Strangers on a train

As a social psychologist, Schroeder has long studied the power of social connections—even of the most casual sort. In a 2014 study, she and co-author Nicholas Epley of Chicago Booth corralled commuters into striking up conversations with those seated near them on buses and trains. Despite telling the researchers they thought they’d be happier keeping to themselves, those who chatted with a stranger said they had a more enjoyable commute than those who were asked to stay disengaged or commute as normal. (In an effort to combat polarization and isolation, the BBC later implemented the idea on the London Tube, creating designated chat cars stocked with conversation-starter cards.)

This time, Schroeder and co-authors Ed O’Brian, an associate professor at Chicago Booth, and Michael Kardas, a post-doctoral fellow at Northwestern’s Kellogg School of Management, looked at how people feel during conversations with strangers, and why people disengage so quickly. In five experiments with about 1,000 participants matched with random conversation partners, they found that most people predicted that their chats would get less enjoyable over time. They did not—when the researchers measured people’s self-reported emotional experiences over the course of their conversations, they found that their enjoyment held steady, and for many people it increased over time.

“We found people mis-predicted the trajectory of the experience of conversation,” Schroeder said. “If you listen to the same song over and over again or do the same activity over and over again, your enjoyment might go down. But it’s not the same with conversation, which can go in so many different directions.”

Breadth over depth

In one experiment, people preferred to switch conversation partners each time they were given a chance, rather than sticking with one partner. But switching around didn’t increase their enjoyment, the researchers found.

“People seem to prioritize breadth over depth,” Schroeder said. “Instead of investing in the same person, they opt to switch—which to me means people are missing a fundamental feature of relationship building.”

Fear of having nothing to talk about

What was most surprising to Schroeder was her findings about why people cut things short. It wasn’t driven by awkwardness or other factors, but rather by people’s worries that they would run out of things to talk about, they found over multiple experiments.

In perhaps the most compelling experiment in the paper, participants were given the choice between sitting alone in silence—without their phones, internet, or other distractions—or chatting with another person for 30-minute session. Most chose to spend the better part of the session in silence. They reported less enjoyment than the pairs who were forced to keep talking for the full 30 minutes. In other words, those who were required to talk actually had a better experience than the people who freely chose how to spend their time.

“There are so many good reasons to be socially engaged for people’s physical and mental health,” said Schroeder. “Yet we find in many contexts that people tend to be less social than is optimal for their well-being.”

Exploring the psychology of why people choose to disconnect from others is an important area for future research, she said.

The study:

“Keep talking: (Mis)understanding the hedonic trajectory of conversation.”
By Michael Kardas, Juliana Schroeder, and Ed O’Brien
Journal of Personality and Social Psychology (forthcoming – advance online publication 2021)

Study: What if you knew how much your boss makes?

A hand holds up a bundle of dollars while many other hands do the same in the background
Credit: RapidEye for iStock/Getty Images

More states are requiring employers to disclose information about their workers’ salaries with the hope it will reduce gender and racial pay gaps. But increasing pay transparency can also have some surprising impacts on worker productivity, according to a new large-scale study that is the first to examine how employees respond when they find out how much both their peers and bosses make.

The study, co-authored by Assoc. Prof. Ricardo Perez-Truglia, asked over 2,000 employees at a large commercial bank in Southeast Asia to guess their peers’ and managers’ salaries, then monitored their work habits after they were given the salary information. The main findings: Employees became less productive when they discovered their peers were making more money than they thought, but they worked harder when they discovered their bosses were earning more than they estimated.

“It was not uncommon for employees to find out that some of their bosses got paid three, four, five times as much as they do, sometimes 20 times as much,” said Perez-Truglia, whose study is forthcoming in the Journal of Political Economy. “What shocked us was that when you compared yourself to your peers, small pay differences demotivate you. But when you find out your bosses make an obscene amount more than you make, you don’t care. If anything, you become more productive.”

The productivity boost was strongest for manager positions that were just a few promotions away from an employee’s current job, but the effect faded when it came to high-level, unattainable positions. This suggests workers believe, “If I work hard and get promoted, I will get paid an obscene amount myself,” Perez-Truglia said.

He and co-author Zoë Cullen of Harvard Business School also found that employees were better at guessing peer pay than manager pay. Employees also wanted the company to release more salary information—as long as it wasn’t their own.

The researchers did not study pay disparities by race or gender, but said their evidence relates to the growing debate on pay transparency laws. “There is a widespread view that forcing firms to be more transparent would reduce pay inequality,” they wrote. “Our findings suggest that these policies may be effective, but in a narrow sense: While transparency may pressure firms to reduce horizontal inequality (between peers), employees are unlikely to exert the same pressure to reduce vertical inequality (between employees and managers), which constitutes the bulk of pay inequality.”

The experiment

The research was conducted at an unidentified Southeast Asian bank in 2017, when Cullen was working there as chief economist. The researchers asked employees to guess the average base salaries of their managers and peers. Then, they conducted an experiment: half of the subjects, selected at random, would get to see an estimate of how much their peers or managers actually get paid.

The researchers then measured the behavior of these employees for 90 days after they saw, or did not see, what others were making. They found that employees worked harder–spending more hours at work, sending more emails from their company account and making more sales—when they found out their managers earned more than they thought. But those who found out their peers made more than they had estimated slacked off.

For example, they estimated that a 10% increase in manager salary over what employees had guessed increased the average hours employees worked by 1.5%, while a 10% increase in peer salary over what employees had guessed reduced the hours they worked by 9.4%.

The end of the survey included questions related to employee morale, such as job and pay satisfaction, and attitudes toward pay inequality. “When we tell them their peers get paid more, they say inequality is an issue. But when we tell them their bosses get paid more, they say they don’t care,” Perez-Truglia said.

On average, employees underestimated their bosses’ salaries by about 14%, but when it came to their peers’ pay, about half guessed too high and half guessed too low.

Would companies benefit?

Finding out how much peers earn “would positively affect some people and negatively affect some people,” with the net result for the company being about zero. “They cancel each other out,” Perez-Truglia said. Disclosing manager pay, however, would have a small positive impact on productivity.

On balance, the researchers concluded that companies and their employees could benefit from greater pay transparency.

Their results are consistent with previous research that found employees become demotivated when they find out their peers make more than they do. A 2012 study of University of California employees by UC Berkeley economists David Card, Emmanuel Saez, and Enrico Moretti along with Alexandre Mas of Princeton University showed that employees who found out they were earning less than the median for their unit were less satisfied with their job and more likely to look for a new one, while above-median earners were unaffected.

This new study is the first to look at the impact on employees who discover their boss’ pay, Perez-Truglia said.

He and Cullen also found that employees were hungry for salary information, and many were willing to “pay” for it. In the experiment, some employees gave up a chance to win almost $200 to see their boss’ or peers’ salaries. Employees may feel they need pay information “to decide whether to work harder to get promoted, or to use it as a bargaining chip in future salary negotiations,” they wrote.

Separately, in response to two survey questions, 65% of the employees said they would like their company to disclose to all employees the same type of average pay data provided in the experiment. However, 75% opposed disclosing everyone’s exact salary. “One plausible interpretation,” the authors wrote, “is that while employees value the salary information a lot, they may value their privacy even more.”

 

Home Work

The effects of remote work on collaborationIllustration of a disconnected team shown using several bulls-eye targets. In two of the targets, the center is open, as if a window, and silhouetted figures look out. A man is climbing a ladder up to a woman in one of the center areas. Two people watch from a different bulls-eye's center area.

As companies debate the impact of large-scale remote work, a new study of over 61,000 Microsoft employees found that working from home causes workers to become more siloed in how they communicate, engage in fewer real-time conversations, and spend fewer hours in meetings.

The study, published in the journal Nature Human Behaviour and co-authored by Assistant Professor David Holtz, suggests that a full-time remote workforce may have a harder time acquiring and sharing new information. If unaddressed, this could have implications for productivity and innovation among information workers down the road.

Holtz, who conducted the research as an MIT Sloan doctoral intern at Microsoft, and Microsoft colleagues Longqi Yang, Sonia Jaffe, Siddharth Suri, and seven others, compared the 18% of Microsoft employees who were already working from home with those who abruptly shifted online during the pandemic. Through statistical techniques, they teased out changes in behavior caused by remote work specifically rather than the upheaval of the pandemic itself.

The researchers had access to anonymized data on most of Microsoft’s U.S. employees. They also used aggregated weekly summaries of the amount of time workers spent in scheduled and unscheduled meetings and calls, the number of emails and instant messages they sent, and the length of their workweeks, as well as monthly summaries of workers’ collaboration networks.

The time people spent in meetings decreased by about 5% though unscheduled meeting time increased slightly. Holtz also analyzed how collaboration patterns are affected by an individual and by one’s collaborators working remotely. Both, he found, are important.

“That your colleagues’ remote work status affects your own work habits has major implications for companies considering hybrid or mixed-mode work policies,” he says. For example, having one’s collaborators in the office together improves communication and information flow for those in and out of the office. “It’s important to be thoughtful about how these policies are implemented.”

Prof. David Teece named a Citation Laureate for pioneering economics research

UC Berkeley Haas School of Business Professor David J. Teece has been named as a 2021 Citation Laureate in economics for his pioneering research on entrepreneurship, innovation, and competition.

Prof. David Teece
Prof. David J. Teece

Teece is among 16 researchers from six countries whose work was deemed to be “of Nobel class” by the Institute for Scientific Information. These researchers are among the most highly cited within the Web of Science, a global database of citations in peer-reviewed journals managed by analytics firm Clarivate.

“I’m humbled to be included with such esteemed names, and wish to thank the University of California, Berkeley, the Haas School, and the Institute for Business Innovation for providing the environment that has enabled me to flourish as a scholar-entrepreneur,” said Teece, who is the Thomas W. Tusher Professor in Global Business, faculty director of the The Tusher Initiative for the Management of Intellectual Capital, and also the founder and executive chairman of Berkeley Research Group.

A global authority on the theory of firm and strategic management, competition policy, and intellectual property, Teece has written over 30 books and two hundred scholarly papers, and has been cited over 186,000 times (per Google Scholar).

Teece is well-known for his theory of “dynamic capabilities,” which says that what matters most for business is corporate agility, or the ability to sense new threats, seize opportunities, and reconfigure as necessary. His seminal 1997 paper on the concept has been cited almost 12,000 times in its original version, and 47,000 times in all versions.

For context, out of some 52 million articles indexed in the Web of Science since 1970, only 6,500 (or .01%) have been cited 2,000 or more times. Citation Laureates are identified and selected from among this group. “They are individuals whose research publications are highly cited and whose contributions to science have been extremely influential, even transformative,” according to Clarivate’s announcement.

“For a paper to be cited 2,000 times or more is a rarity,” said David Pendlebury, senior citation analyst at the Institute for Scientific Information at Clarivate. “Authors of very highly cited papers are usually members of national academies of sciences, hold senior appointments in universities and other research institutes, and have received many top international prizes in their fields. Indeed, many of them have helped to shape their fields of study.”

Clarivate uses quantitative data in addition to qualitative assessment to provide insights about the world’s most influential researchers. Citation Laureates are awarded in the areas recognized by the Nobel Prize: Physiology or Medicine, Physics, Chemistry and Economics. Since 2002, 376 researchers have been awarded Citation Laureates, and 59 of them have gone on to receive a Nobel Prize.

Teece has been a professor at the Haas School of Business since 1982. He formerly served as faculty director of the Institute for Business Innovation. He holds a PhD in economics from the University of Pennsylvania as well as 10 honorary doctorates.

“I cherish the atmosphere of open discussion and the ability to challenge received paradigms, which is a quintessential Berkeley trait,” Teece said. “We must all work hard to maintain these traits along with an interdisciplinary focus, and linkages between theory and practice. It is only by pursuing these goals that our frameworks, theories, and models can be both rigorous and relevant.”

 

When everyone works remotely, communication and collaboration suffer, study finds

A woman works from home
Photo: Tanatat for Adobe Stock

As companies debate the impact of large-scale remote work, a new study of over 61,000 Microsoft employees found that working from home caused workers to become more siloed in how they communicate, engage in fewer real-time conversations, and spend fewer hours in meetings.

The study, published Sept. 9 in the journal Nature Human Behaviour and co-authored by Berkeley Haas Asst. Prof. David Holtz, made use of data from before and after Microsoft imposed a company-wide work-from-home mandate in response to the COVID-19 pandemic. The findings suggest that a full-time remote workforce may have a harder time acquiring and sharing new information—which could have implications for productivity and innovation among information workers down the road.

“Measuring the causal effects of remote work has historically been difficult, because only certain types of workers were allowed to work away from the office. That changed during the pandemic, when almost everyone who could work from home was required to do so,” said Holtz, who conducted the research as an MIT Sloan doctoral intern at Microsoft, and co-wrote the paper with Microsoft colleagues Longqi Yang, Sonia Jaffe, Siddharth Suri, and seven others. “The work-from-home mandate created a unique opportunity to identify the effects of company-wide remote work on how information workers communicate and collaborate.”

The analysis was based on anonymized data describing the emails, instant messages, calls, meetings, and working hours—all stripped of their content and identifying information—of the overwhelming majority of Microsoft’s U.S. employees.

Holtz, a faculty affiliate at the Berkeley Institute for Data Science and research affiliate at the MIT Initiative on the Digital Economy, said that while the pandemic offered a rare opportunity to study the impact of firm-wide remote work, significant effort was required to understand the extent to which changes in behavior were caused by remote work in particular rather than the upheaval of the pandemic itself. After all, workers suddenly found themselves navigating shelter-in-place orders and supply shortages, caring for children home from school or vulnerable relatives, and coping with general stress and anxiety.

Microsoft, where 18% of employees were working remotely before the company issued its work-from-home mandate, offered the opportunity for comparison. The authors separated out the effects of remote work from other effects of the pandemic by using a statistical technique to compare those Microsoft employees who were already working from home with those who abruptly shifted online during the pandemic.

The researchers had access to anonymized data on employees’ roles, managerial status, business group, length of tenure at the company, and what share of their co-workers were remote prior to the pandemic; they matched groups of workers with similar observable characteristics. They also used aggregated weekly summaries of the amount of time workers spent in scheduled and unscheduled meetings and calls, the number of emails and instant messages they sent, and the length of their workweeks, as well as monthly summaries of workers’ collaboration networks.

Among their key findings:

  • Company-wide remote work caused workers’ collaboration networks to become less interconnected and more siloed. They communicated less frequently with people in other formal and informal business groups.
  • Remote work caused workers to spend about 25% less of their time collaborating with colleagues across groups, compared to pre-pandemic levels. Remote work also caused workers to add new collaborators more slowly.
  • Conversely, remote work led workers to communicate more frequently with people in their inner network, and to build more connections within that inner network.
  • Remote work caused workers to spend more time using asynchronous forms of communication, such as email and message platforms, and less time having synchronous conversations in person, by phone, or by video conference.
  • Remote work also caused the number of hours people spent in meetings to decrease by about 5%, suggesting that the increase in meetings many experienced during the pandemic was not due to remote work, but due to other pandemic-related factors.

Holtz said that the team was also able to separate the effects of company-wide remote work into two separate components: how your own collaboration patterns are affected when you work remotely, and how your collaboration patterns are affected when your collaborators are working remotely. They concluded that both are important.

“The fact that your colleagues’ remote work status affects your own work habits has major implications for companies that are considering hybrid or mixed-mode work policies,” he said. For example, having one’s teammates and collaborators in the office at the same time improves communication and information flow for both those in and out of the office. “It’s important to be thoughtful about how these policies are implemented.”

###

About this study

The Effects of Remote Work on Collaboration Among Information Workers

By Longqi Yang, David Holtz, Sonia Jaffe, Siddharth Suri, Shilpi Sinha, Jeffrey Weston, Connor Joyce, Neha Shah, Kevin Sherman, Brent Hecht, and Jaime Teevan

This study is the result of a collaboration between David Holtz, who recently joined the faculty of Berkeley Haas, and researchers at Microsoft Corp. The authors received no specific funding for this work and the paper underwent an independent peer review process by the journal Nature Human Behavior. Information on Nature Human Behaviour’s peer review process and editorial standards can be found on the journal website.

Authors Longqi Yang, Sonia Jaffe, Siddharth Suri, Shilpi Sinha, Jeffrey Weston, Connor Joyce, Neha Shah, Kevin Sherman, Brent Hecht & Jaime Teevan are employees of Microsoft.

Author David Holtz is an assistant professor at the Haas School of Business, University of California, Berkeley; a faculty affiliate at the Berkeley Institute for Data Science; and a research affiliate at the MIT Initiative on the Digital Economy. He began working on the project during a three-month doctoral research internship at Microsoft, and completed work on it as an independent researcher with no affiliation with Microsoft Corp.

(Updated Sept. 16, 2021)

Small businesses follow big chains’ lead on pandemic closures, research finds

Closed due to coronavirus
Photo: Gwengoat for Getty Images

From the earliest days of the coronavirus pandemic, local shops, restaurants, and other small business have struggled with how best to respond to the ever-changing crisis.

A new Berkeley Haas study found that when it came to closures, the big chains set the tone: In the first few weeks of the pandemic, local businesses not affiliated with a chain were more likely to close their doors if competing chain outlets in the same ZIP code shut theirs.

The study, based on cell-phone location data and published in the journal Management Science, sheds light on how businesses influence each other through “social learning.”

And while the focus was on business closures, “the key lessons are applicable to some of the questions businesses are grappling with now,” such as whether to impose mask or vaccine mandates or let employees work from home, said co-author Mathijs de Vaan, an assistant professor of management at Berkeley Haas.

The researchers, who included Berkeley Haas professors Sameer Srivastava and Abhishek Nagaraj along with PhD student Saqib Mumtaz, used anonymized cell-phone tracking data to determine whether local and chain establishments were open or closed each day between March 1, 2020— just before local governments began issuing stay-at-home orders—and April 15, 2020.

“Many of these directives were ambiguous or not enforced, leaving business owners with latitude to interpret the guidance as they see fit,” the authors noted.

Business owners had to make unprecedented closure decisions not knowing how their customers and employees would react. The situation was so uncertain that going into the experiment, the team couldn’t predict whether the closure of a chain store would cause an independent business nearby to do the same or remain open for competitive reasons.

“If I’m a small business owner, it’s not so straightforward what I should do,” de Vaan said. “If the big guy stays closed, maybe I can make more money. Conversely, maybe the big guy is better equipped to know” the right response.

The researchers analyzed daily visits to 230,403 local businesses that were in the same industries and ZIP codes as chain outlets affiliated with 319 large national brands. They focused on service-oriented outfits such as retail shops, restaurants, movie theaters, and gyms, and excluded industries deemed essential, such as grocery stores and gas stations.

The team tried to control for other local variables that could cause establishments to close, such as shelter-in-place orders, local infection rates, or demographics. “Interestingly, we found the decisions of these branded chains were uncorrelated with the local Covid conditions,” de Vaan said.

In a typical example, the researchers looked at fitness centers in two neighboring ZIP codes in Collin County, Texas, on March 25, 2020. One ZIP code had an Orangetheory chain gym that was closed, while the other had an Anytime Fitness chain location that was open. They found that all six local gyms in the same ZIP code as the closed Orangetheory were closed, while three out of five local establishments in the same ZIP code as the Anytime Fitness were also open.

Looking at all industries and locations nationwide, they estimated that if a chain store closed one day, a competing community business in the same ZIP code was, on average, 3.5% more likely to close the next day. That may not sound like a lot, but that’s just the daily level. “If you accumulate 3.5% across days and establishments and places, it adds up to be a fairly consequential effect in a town that may have hundreds of businesses,” Srivastava said.

The researchers concluded that, “if you don’t have clear-cut information, you are going to look at people around you,” de Vaan said.

Given that local governments are unlikely to mandate vaccines, “it creates an arena for social influence to pop up,” de Vaan said. If a large company required vaccinations, small competitors have to decide whether following suit would cause them to gain or lose customers and employees. Based on their findings, de Vaan predicts that small businesses would be more inclined to follow suit, but cautions that they didn’t study that question.

“Perhaps most importantly,” the authors concluded, “this paper shows that when government directives and health guidelines are ambiguous, firms will look for other information to guide their decision making. Obviously, such ambiguity may have been intentional if local governments believe that firms are well positioned to make these important decisions. But if one assumes that this is not the case, policy makers and local governments should consider the consequences of a lack of clarity and precision in their directives.”

 

Mission Misalignment

The cost of partisanship among federal workers

Two men walking past one another, one carrying a red translucent panel and the other a blue translucent panel.

A president appoints just 0.23% of the federal workforce. The vast majority of civil servants, then, carry on regardless of their party affiliation. But this inevitable political mismatch takes a toll—a new study has found reduced performance from workers misaligned with the president’s party.

“Some people might think there’s some sort of ‘deep state’ slowing things down,” says Haas Asst. Prof. Guo Xu, who conducted the research along with colleagues from Northwestern University, “but we see the same thing from the Republican side as the Democratic side. Based on our evidence, it looks like misaligned civil servants just become less motivated overall.”

The study spanned four administrations: Bill Clinton, George W. Bush, Barack Obama, and Donald Trump, and focused on some 7,200 procurement officers, who select and monitor federal contracts for services, construction projects, and more, amounting to over 9% of the federal budget.

Comparing similar contracts, the researchers found an 8% increase in cost overruns among contractors who were registered as Democrats under a Republican president and vice versa—even among officers within the same department in the same year.

“We didn’t see any change in how people were choosing contractors or the types of contracts, so the decline in performance occurred while they were overseeing the contract,” Xu says. “These overruns really do seem to be due to a decline in morale, which we corroborated through data from employee surveys.”

The relative continuity of the U.S. civil service contrasts with countries such as India, where there is far more political churn, which is in many ways a sign of a well-functioning bureaucracy, Xu says. However, he notes, the research underscores the potential costs and significant impact of mission misalignment in any organization.

Only Human

The myth of the rational CEO

Man in a suit wearing money as blinders, with small employees standing on his shoulder.

CEOs are paid big bucks for their ability to make rational, objective decisions that boost company performance. But do they really do better than the average worker?

A new analysis by Berkeley Haas behavioral finance researchers shows convincing evidence that CEOs are just as susceptible to biased decision-making as the rest of us—in some cases, even more so. For example, past research has found CEOs to be substantially more optimistic than both the lay population and CFOs.

“Biases don’t stem from a lack of education, intelligence, or ability—they’re a hard-wired part of human behavior that affect even the most educated and influential decision makers,” says Marius Guenzel, MS 17, PhD 21, who conducted the analysis with Prof. Ulrike Malmendier, the Edward J. and Mollie Arnold Professor of Finance.

Economists have long assumed that powerful market forces ensure that the elite group of people who steer companies through complex decisions are exceptionally rational. Guenzel, now an assistant professor at the Wharton School, and Malmendier argue that 15 years of behavioral finance research (much of it by Malmendier, a leader in the field) has whittled away at those assumptions.

The first assumption in the so-called “rational-manager paradigm” is that smart, highly trained people strive for the top jobs, and the competitive selection process weeds out those with potentially harmful biases. Yet research has shown that overconfident decision-makers—biased by definition—are more likely to be appointed as CEOs. One reason is that boards looking for a candidate with the “best” past performance might select someone who made a risky move that happened to pay off. And biased board members themselves may choose candidates who match their way of thinking.

A second assumption is that CEOs learn from their mistakes and improve their decision-making over time, thus reducing biases. But big decisions, like acquisitions, happen so infrequently that there are limited opportunities to learn. An overconfident leader might plunge the company into a dicey deal. It’s also hard to distinguish between correlation and causation in most decisions, and a person with “self-attribution bias” tends to attribute successes to their own actions and blame failures on others.

Plus, biased CEOs may pad management ranks with like-minded colleagues who reinforce their biases: Malmendier has found that overconfident CEOs are seven times more likely to appoint overconfident CFOs. Malmendier also pioneered a line of research that shows people’s tolerance for financial risk is shaped by their lifetime experiences—another source of bias.

Finally, economists have argued that watchful boards keep bias-driven errors at bay, disciplining or replacing leaders who go astray. Yet there’s little evidence that boards objectively evaluate CEOs for bias, and biases at the top are not necessarily associated with higher rates of dismissal, the researchers conclude.

“Can a board link company performance to a CEO’s decision?” says Guenzel. “It’s hard to determine causality in a way that leads to their firing.”

Charles O’Reilly, MBA 71, PhD 75
Professor, Stanford Graduate School of Business & Professor Emeritus, Berkeley Haas

Charles O’Reilly III, MBA 71, PhD 75

Charles O’Reilly is worried about the future of workplace culture. As more companies prepare for a post-pandemic world of remote work, he says there’s only so much leaders can do to build cohesion via video calls. “You can create norms for how employees interact over Zoom,” he says, “but their identification with the organization? That goes away.”

O’Reilly has spent the last 45 years helping define and measure workplace culture—for researchers as well as some of the world’s largest companies, among them Intel, General Motors, and Novartis. “Culture isn’t about values,” he tells them. “It’s a pattern of behavior reinforced by people and systems over time.” In other words, forget lofty statements. Focus on the day-to-day.

As a top scholar of organizational behavior more broadly—he’s authored five books and more than 100 journal articles and taught at UCLA, Haas, and Stanford—O’Reilly has also generated insights into corporate diversity, compensation, innovation, and how to develop more effective, strategic, and visionary leaders—a topic that sparked his unexpected career path.

O’Reilly had no intention of becoming an academic when he entered Haas in 1969 after serving five years as an Army captain in the Vietnam War. But an MBA course on organizational behavior with Prof. Emeritus Karlene Roberts hooked him. “Suddenly, I understood why some units I served with were positive and cohesive and others were not and the role that leadership played in that. This notion of culture as social control fascinated me,” he says—a curiosity that continues to impact employees worldwide to this day.

gsb.stanford.edu/faculty-research/faculty/charles-oreilly

Nik Dehejia, MBA 01
CEO, Oakland Zoo

Nik Dehejia, MBA 01

When Nik Dehejia became the Oakland Zoo’s director of strategic initiatives in 2006, visitors could view a range of exotic creatures that included elephants, tigers, and lions. What a difference 15 years has made.

Dehejia’s efforts have not only helped to more than double the zoo’s footprint—from 45 to 100 acres—but introduced in 2018 its California Trail, a 56-acre expansion of native species that includes grizzly and black bears, California condors, bison, and bald eagles. Also roaming the native plant habitats are mountain lions, gray wolves, and jaguars.

All of the species featured in the new exhibit are rescue animals, many of them nursed back to health after being found injured on roadways or hurt in wildfires. In fact, the zoo’s conservation efforts are saving some species from potential extinction, including certain amphibians and California condors.

“[The California Trail expansion] represents native species in a way that hadn’t ever been done before,” says Dehejia, who in April began duties as the zoo’s CEO. “It allows us to tell the story of California’s natural and human history.”

The expansion was made possible by an 11-year, $72 million capital campaign that concluded in 2018—money Dehejia helped raise. These days, Dehejia is leading the facility back to vibrancy after two pandemic-related shutdowns, hoping to again approach a million annual visitors.

“My focus is on how we continue our mission activities, whether it’s animal care or welfare, our conservation efforts, or our educational programs in the community,” he says.

linkedin.com/in/nik-dehejia

California Management Review ranked among most influential in the world

Berkeley Haas’ academic management journal, California Management Review, has been ranked as one of the most highly cited practitioner-oriented research journals in the world.

CMR LogoCalifornia Management Review earned single-year journal impact factor of 8.836, and a five-year impact factor of 9.287, in the 2020 Clarivate Journal Citation Reports (formerly Thomson Reuters) Social Sciences Citation Index.

The journal impact factor is a gauge of academic influence among top journals. It’s based on how frequently a journal’s articles are cited by scholars who publish in a collection of top social science journals. California Management Review articles were cited 7,459 times in 2020.

While California Management Review publishes articles from researchers around the world, the two most-cited articles for the year were by Berkeley Haas faculty. They are: Open Innovation: Research, Practices, and Policies, co-authored by Adjunct Prof. Henry Chesbrough, faculty director for the Garwood Center for Corporate Innovation; and Innovation, Dynamic Capabilities, and Leadership, co-authored by Prof. David Teece, the Thomas W. Tusher Professor in Global Business

In the citation report’s category rankings, California Management Review ranked 18 out of 153 in Business, and 18 out of 226 in Management.

“Our recent outstanding impact factor is evidence of our ability to seek out and attract high-quality submissions,” said Editor-in-Chief David Vogel, professor emeritus at Berkeley Haas. “It also reflects our increased use of social  media to  publicize what we publish. I am very proud of what we are doing at California Management Review.”

About California Management Review

Published at the University of California for more than sixty years, California Management Review serves as a source of evidence-based research that inspires, informs, and empowers stewards of modern organizations. The journal disseminate ideas that engage scholars, educate students, and contribute to the practice of management.

More information about California Management Review’s impact factor and international rankings is available here, along with links to new research and information about publishing in the journal.

Christine Tao, BS 01
Co-Founder & CEO, Sounding Board

Christine Tao

While many businesses struggled in 2020, Christine Tao’s virtual coaching startup Sounding Board began thriving, raising $13.1 million in funding.

Sounding Board offers remote professional coaching to company leaders ranging from high-level executives to first-time managers. “Our mission is to help create the world’s most impactful leaders,” says Tao.

Though investors were initially skeptical when Tao pitched the idea in 2016, the necessity for coaching became apparent when the pandemic shifted workers online.

“Managers were having to figure out: ‘How do I lead a team if I’m remote? How do I help employees prioritize their tasks?’” Tao says. “Those kinds of remote management and leadership skills are very much in demand.”

Tao herself realized the benefits of coaching while serving in her first executive leadership position. Her employer provided her a coach—future Sounding Board co-founder Lori Mazan.

Mazan’s influence included helping Tao to always exude confidence when speaking. “Leadership is often about other people’s perception of your actions,” Tao says. “Lori helped me understand behaviors I was doing that weren’t serving me.”

The woman-led Sounding Board also has an all-female board and a global network of hundreds of coaches. Its client list includes Bloomberg, Conagra, Dropbox, and Chime.

Tao, who still uses a coach to further her leadership growth, says it’s the kind of learning that offers a win-win for companies and employees. “If you invest in your people early, not only will it benefit them,” she says, “it benefits the company because you can better lead your teams.”

linkedin.com/in/christineptao-leadership-coaching

Mixed Signals

Ten things every manager should know about nonverbal behavior

Managers influence the people they work with every day—not only through their words and decisions but also through their nonverbal behaviors. Whether they’re aware of it or not, their posture, facial expressions, and reactions can all serve to build trust and enhance working relationships when handled well. But the same nonverbal cues can also undermine trust and cause problems in the long run when handled poorly. Here are ten things to keep in mind when interacting with direct reports.

BACKGROUND:

In 1960, psychologist Robert Rosenthal conducted a landmark research study on the role of expectations on performance. He discovered that when rats in a maze were treated more kindly and encouragingly by examiners, they were able to find solutions more quickly and remember them longer.

Rosenthal was then curious to see whether an examiner’s biases could influence the performance of a group of rats at the same skill level. When examiners were told beforehand that an assigned rat was particularly bright and could solve mazes quickly, they were more inclined to treat the rat encouragingly. When examiners were told that a rat was dull and had little ability, they held low expectations and treated the rat worse. Despite there being no difference between the rats at first, the “maze bright” and “maze dull” rats soon began to diverge significantly in their performance. The examiners’ expectations had a direct influence on performance.

This finding was tested again on schoolchildren. It was found that “bright” students were treated differently by their teachers, performed better in school, raised their hands more often, and demonstrated an increase in IQ of 27 points after a year of study when compared to their peers. Rosenthal’s research had a profound effect on the study of psychology, popularizing the idea of the “self-fulfilling prophesy.”

As Rosenthal demonstrated, unconscious behaviors can have a significant effect on others—how they feel about themselves, how they perform, and whether they feel validated and included.

1—Listening

Many people struggle with feeling unheard at work. It’s important for managers to truly focus on others while they are speaking: Make eye contact and be sure not to look at a computer or phone screen.

2—Liking and valuing others

It’s important for managers to engage with others in a way that is relatable and collaborative. One way is through synchrony—simultaneous action of two or more people at once. This could be as simple as eating lunch at the same time. Mimicry is similar. People who are close have a natural tendency to mimic: If someone moves closer to the table, another will follow suit shortly after. Finally, managers should prioritize their listening and conversational turn-taking skills.

3—Intelligence

As a manager you want to be able to detect intelligence in others in addition to conveying intelligence, which will increase others’ perception of how capable you are. Behaviors that convey intelligence involve engagement. When we appear engaged by what others are doing or saying, it tends to reflect our intelligence and people’s perception of our competence. Affirmative paralinguistic utterances (such as “mm-hm” and “yes”) can accordingly signal intelligence.

4—Power

Conveying power through nonverbal behavior is simple. The real question is whether it is appropriate to express power in a given situation. Managers should assess whether the time is right to demonstrate a more authoritative tone and then seek to use an upright, expansive posture and speak for longer. Be careful, though: long speaking time can also be associated with those who struggle with self-regulation. Have something substantive to say.

5—Building trust & consensus

Signaling that you trust and can be trusted by others is easy. Managers should express an open body posture and look at people while they’re speaking. To make sure everyone feels included, make eye contact with those who have not spoken yet and give them a chance to contribute.

6—Using the wisdom of the crowd

Making sense of others’ thoughts, feelings, and intentions can take up quite a bit of mental bandwidth. But as you practice, your judgments will improve. Additionally, it can help to distribute the burden of judgment to a small group. Asking trusted advisors and averaging their impressions of a situation or another person can help you tap the wisdom of the crowd to achieve a more accurate overall assessment.

7—Detecting deception in strategic and ordinary operations

Detecting deception is difficult. On average, managers are only slightly better than chance unless they have had specific training. Open and honest communication is important, so lies—even minor ones—can damage culture and productivity. When a person lies about something inconsequential, they experience little to no fear of consequence, inner conflict, or guilt. As such, the lie is not revealed through body language. However, most of the time people feel at least a little inner conflict when they say something that isn’t true. Look out for changes in baseline behavior (like shifting uncomfortably) or seemingly fake facial expressions (like fake smiles) that don’t seem to correspond to the context.

8—Status (Respect And Admiration Of Others)

Like power, conveying status through nonverbal behavior is easy to do—but it’s important to note the difference between power and status. Power is defined as access to and control over people and resources. Status is the respect and admiration of others. The same nonverbal cues that can indicate power should be used in accordance with an individual’s management style—pick those that work best for you. There are also two specific behaviors that convey status. First, the use of deliberate, clear gestures while speaking. And second, the ability to laugh and make others laugh.

9—Avoiding resting “cranky” face

Has anyone ever seemed nervous around you? Do people think you disapprove of them even when you don’t? Many of us can look judgmental or upset as we listen to others. Pay attention to your eyes: Make sure you aren’t unconsciously squinting or glaring. By placing your thumb and forefinger on your chin, others’ perceptions of your furrowed brow can be converted from a face of judgment to a face of engagement.

A woman sweating and looking nervous as she gives a presentation to a man with resting cranky face and a smiling woman.

10—Avoiding microaggressions

Scowls and eye rolls are obvious negative behaviors. But the absence of positive behavior is also a microaggression. Smiling, looking at, and speaking with
others all equally signal “I like working with you.” Avoiding positive cues can send a negative message
.

News coverage of racial incidents lowers support for Black entrepreneurs, study finds

Black Lives Matter demonstrators march in St. Paul
Black Lives Matter demonstrators hold signs during a march in St Paul, Minnesota on March 19, 2021. REUTERS/Nicholas Pfosi

One might expect that black entrepreneurs are receiving some long-deserved recognition. After the murder of George Floyd last summer, calls to #SupportBlackBusinesses and #BuyBlack soared. Top U.S. companies vowed to invest $50 billion in promoting racial equity, including support for communities of color, according to Fortune.

A year later, anecdotal reports from Black business owners suggest that the uptick in sales during the Black Lives Matter protests didn’t last. As of May 2021, U.S. companies had spent or made specific pledges worth only $250 million, or 0.5% of their total commitment.

Andreea Gorbatâi, an assistant professor in the Management of Organizations group at Berkeley Haas, is not surprised. Her latest research—forthcoming in Organization Science—paints an even bleaker picture: Black entrepreneurs have an even harder time finding support when racial discrimination is top of mind. In her paper, she estimates that the overall success rate for Black founders raising money through Kickstarter fell 21% after racially charged deaths of African Americans topped the news.

“This confirms what sociologists have long known: When people are reminded of how they differ from others, they often become more inclined to identify—and side—with their own group,” Gorbatâi says.

When people are reminded of how they differ from others, they often become more inclined to identify—and side—with their own group. —Andreea Gorbatâi

Calling attention to differences

Gorbatâi’s article explores the social mechanisms behind the drop-off in support. When news reports call attention to acts of racism, potential crowdfunding investors who self-identify as white are more likely to question the quality of Black founders’ idea or ability to succeed, she found.

This shows, says Gorbatâi, that discriminatory behavior is not just a function of individual dislikes for a particular group, nor is it what economists call “statistical” discrimination—a function of the information one has about that group. Rather, the extent to which people engage in discriminatory actions is also influenced by changes in their environment, even when those changes are unrelated to the action at hand. “Reading about racial discrimination occurring elsewhere in the United States seems to affect one’s likelihood of shopping from an African-American-owned local business—completely unrelated to the event in the news,” Gorbatai says.

This change in preferences is not limited to whites. Gorbatâi and her co-authors found evidence that Black participants were also more likely to favor Black entrepreneurs after reading about highly publicized incidents of racism. Yet at the societal level, deep-rooted systemic racism, the resulting differences in cumulative net worth between Blacks and whites, and the fact that Black Americans constitute just 13.4% of the U.S. population translate into greater economic discrimination against Black entrepreneurs.

“These research results add to the painful picture of pernicious and multifaceted discrimination against Black people in the U.S.,” says Gorbatâi, who is set to become an associate professor at the Vlerick Business School in Belgium in August.

Reacting to news reports

Gorbatâi and her collaborators, Peter Younkin, PhD 10 (Sociology), an assistant professor at the University of Oregon, and Gordon Burtch, an associate professor at the University of Minnesota, confirmed their findings across three online experiments and one real-world experiment that examined the impact of Black Lives Matter media coverage on Kickstarter campaigns.

In their first study, 323 U.S. adults—most of whom were white—were given one of two Associated Press articles to read. The first group read a neutral account of plans by Starbucks to provide racial bias training to employees after two Black men were arrested for asking to use a Philadelphia store bathroom. The second group read about a snowstorm in the Midwest. All participants were then asked to review a crowdfunding proposal for a waterproof speaker, being told that it was either led by either a Black or white founder. The researchers found a significant difference between the groups: Those who read about the snowstorm rated the two proposals similarly, in terms of quality of the idea and abilities of the entrepreneur, while those who had been primed to think about race judged the white-led project to be better than the Black led-one.

Because the first study had very few Black participants, the researchers repeated it, recruiting equal numbers of people self-identifying as Black or white (400 each). In this experiment, they found that after reading about the Starbucks incident, both white and Black participants favored entrepreneurs of their own race—despite the fact that everyone evaluated virtually identical projects.

A third experiment sought to understand what role political affiliations and the tone of media coverage play in people’s attitudes. Specifically, the researchers wanted to assess whether party affiliation is a better predictor of how individuals respond to a Black entrepreneur than racial identity, and whether the tone of media coverage changed their reactions. They asked 500 Republicans and 500 Democrats to read versions of the Starbucks article that had been modified to portray either the police, or the Black men arrested, as behaving disrespectfully and aggressively. These articles were meant to simulate left- or right-leaning media reports, in contrast to the more neutral Associate Press tone.

To Gorbatâi’s surprise, political leanings and media tone were not a significant factor in people’s reactions, with no significant differences between liberals and conservatives. They did, however, note that reading an article that placed blame on either party led the readers to give even lower evaluations of Black founders than the original, neutral article. This was true even for those who read articles that put the police clearly at fault.

“Instead of greater empathy, there was a greater penalty for Black founders,” says Gorbatâi.

Instead of greater empathy, there was a greater penalty for Black founders.

Drop in crowdfunding support

The fourth study examined 2012-2015 Kickstarter data from nearly 22,000 crowdfunding projects. The researchers coded the founders’ perceived race based on their profile photos, and then examined fundraising success rates. Consistent with the experimental results, they found that the percentage of perceived-Black founders who met their funding goal fell from 19% to 15% in the 30-day periods following a series of widely publicized, racially charged deaths—a 21% decline compared to the month before each episode. The cases started with George Zimmerman shooting teenager Trayvon Martin in 2012 and ran through Sandra Bland’s 2015 suicide in jail following a traffic stop arrest.

Gorbatâi says these findings are ripe for further research, including whether positive media coverage involving African Americans leads to less discrimination, even though racial awareness is heightened, and whether other events than the Starbucks incident would yield different responses. For now, it sheds some light on why the empathy that Black Lives Matter inspires is often fleeting.

“We post memes with hashtags like #BLM and write messages of support on social media profiles, but it doesn’t necessarily translate into shopping at, or investing in, Black-owned businesses,” she says. “It’s important to understand why that is and learn how we can challenge and change this pattern of inequity and inequality in a durable fashion.”

Why insisting you’re not racist may backfire

Close up of white man in suit holding a poster that says "no racism"
Credit: Yacobchuk for iStock/Getty Images

When you insist you’re not racist, you may unwittingly be sending the opposite message.

That’s the conclusion of a new study by three Berkeley Haas researchers who conducted experiments with white participants claiming to hold egalitarian views. After asking them to write statements explaining why they weren’t prejudiced against Black people, they found that other white people could nevertheless gauge the writers’ underlying prejudice.

“Americans almost universally espouse egalitarianism and wish to see themselves as non-biased, yet racial prejudice persists,” says Berkeley Haas Asst. Prof. Drew Jacoby Senghor, one of the authors. “Our results suggest that the explicit goal of appearing egalitarian might blind people to the possibility that they could be communicating, and perpetuating, prejudicial attitudes.”

Co-authored by Derek Brown, PhD 24, and Michael Rosenblum, PhD 20—a post-doctoral scholar at NYU Stern School of Business—the study builds on past research finding people’s racial prejudice “leaks out” through nonverbal behavior, such as facial expressions or physical distance. In a series of experiments published in the Journal of Experimental Social Psychology, the researchers looked at perceptions based solely on written content.

They selected a group of white participants, screening out the small percentage who expressed overt prejudice, and scored subjects’ racial attitudes with two widely used assessments. The subjects were then asked: “Do you believe that all people are equal and should have equality of opportunity? Why or why not?,” and “Are you prejudiced toward Black people? Why or why not?” A second group of white participants, asked to read the written responses, accurately estimated how the writers had scored on the prejudice scale.

Linguistic cues

In a second experiment to parse out whether people were signaling racial attitudes intentionally or inadvertently, they asked one group to answer as honestly as possible and another group to answer “in the least prejudiced way possible.” There was no difference to the readers, who accurately scored both groups’ answers—indicating that the writers were unaware of how they came across.

“That gave us some confidence that people are naturally trying to come across as egalitarian, but something about the language they choose is betraying them,” Rosenblum said.

What were those linguistic cues? The most powerful indicator, they found, was language that dehumanized or objectified African Americans—for example, “I have a great relationship with the Blacks.” Other characteristics such as defensiveness, references to personal responsibility, or a belief that equal opportunity exists were strongly associated with higher levels of prejudice, and cues such as focus on equity or an acknowledgement that inequality exists were associated with lower levels of prejudice. Interestingly, references to being colorblind or mentions of personal contact with Black people weren’t indicative of the white participants’ attitudes.

“This demonstrates that peoples’ use of the cues are meaningful not only for how prejudice is expressed, but also how egalitarianism is perceived,” said Brown.

Contagion effect

A third experiment had a sobering result. The researchers found that white participants reported greater prejudice towards Black people after reading statements from the self-avowed white egalitarians who scored high on underlying prejudice. In other words, the readers mirrored the attitudes of the writers, even when they identified themselves as ideologically dissimilar (conservative vs liberal).

“We don’t know whether reading other people’s views gave them permission to express more prejudice, or whether they thought that this is the norm and their actual prejudice level changed, but there seemed to be a sort of contagion effect,” Rosenblum said. “One of the lessons here is that words carry weight. It does seem that this is one way that prejudice is unwittingly spread.”

 

 

Prof. Chatman to serve as associate dean alongside Prof. Moore

Prof. Jennifer Chatman has accepted the role of Berkeley Haas Associate Dean for Academic Affairs (ADAA), beginning July 1. 

Chatman will serve alongside Prof. Don Moore in a dual-leadership structure designed to ensure continuity and provide extra support to the faculty and dean. Moore, the Lorraine Tyson Mitchell Chair in Leadership and Communication, assumed the ADAA role March 9.

“As a triple bear, Jenny has a lifelong passion for Berkeley and Haas, which she has demonstrated with her outstanding leadership and service on top of her research and teaching,” said Dean Ann Harrison. “I am thrilled to have two faculty members with deep expertise in leadership sharing this critical role.”

Chatman is the Paul J. Cortese Distinguished Professor of Management in the Management of Organizations (MORS) group. Since 2019, she has also served as Associate Dean of Learning Strategies, steering the faculty’s transition to online instruction during the pandemic and developing the school’s digital strategy. She holds a BA in psychology from UC Berkeley and an MA and PhD in business administration from Haas, and teaches courses on executive leadership and organizational culture in Haas MBA programs and Berkeley Executive Education.

A world-renowned researcher and consultant on leveraging organizational culture to improve teProfessor Don Mooream and firm performance, Chatman co-developed an industry-leading tool for assessing organizational culture. She later helped drive the effort by former Dean Rich Lyons to codify Berkeley Haas culture in four Defining Leadership Principles: Question the Status Quo, Confidence Without Attitude, Students Always, and Beyond Yourself. In 2018, she joined with Prof. Sameer Srivastava to launch the Berkeley Culture Initiative, focused on driving the next generation of research in the field and working with industry leaders to apply insights and strategies. 

I very much look forward to supporting Dean Harrison’s strategic priorities, supporting and growing our world-class faculty, as well as keeping Haas closely connected to the rest of the university,” Chatman said. 

Moore, also a member of the MORS group, studies confidence and overconfidence, decision making, ethical choice, and negotiation. In his recent book, Perfectly Confident: How to Calibrate Your Decisions Wisely (2020), he brought together studies from psychology and behavioral economics to explain exactly what confidence is, when it can be helpful, and when it can be self-delusional and destructive. He teaches the MBA core course Leading People as well as Executive Decision Making in the Berkeley Executive Education program. 

Moore stepped into the ADAA role after Prof. Catherine Wolfram took a leave to serve in the U.S. Department of the Treasury. Chatman will take the role held by Prof. Sunil Dutta, who will return to his research and teaching when his current term ends on June 30.

Tips for perfectly confident leadership

A silhouetted figure leads a group

Confident people tend to excel—in business, athletics, politics, and other domains. Yet overconfidence can lead to risks that undermine leaders and their companies’ reputations. So, how much confidence is too much confidence?

“Prior research has suggested that there can be some interpersonal benefits of expressing confidence. But it has not explored the dilemmas and potential for hypocrisy created by following that guidance,” says Berkeley Haas Prof. Don Moore, author of Perfectly Confident: How to Calibrate Your Decisions Wisely.

In a new article for California Management Review titled “Perfectly Confident Leadership,” Moore calls into question the idea that overconfidence improves performance, and offers strategies on how to become a wise leader who is both confident and honest.

Confidence does not indicate skill

Often, people associate confidence with skill. But research has not shown a direct connection between the two, says Moore, who has studied confidence and overconfidence for twenty years. He mentions a study demonstrating that people with high confidence and low confidence performed the same level. Yet despite the outcomes, people expected the highly confident people to perform better than the less confident people. This shows that confidence does not necessarily indicate skill, but rather it leaves an impression to others that it does.

While being confident can make you appear highly qualified and help increase others’ faith in you as a leader, being too confident can be your downfall. “Overconfident leaders put themselves, their teams, and their organizations at risk,” says Moore, the Lorraine Tyson Mitchell Chair in Leadership.

Many leaders may feel pressure to stay positive, especially in a pandemic, and resort to lying about successes to both themselves and others. One leader in particular, Elizabeth Holmes, made confident claims about her company Theranos, stating that its product could conduct hundreds of blood tests with one drop of blood—ultimately an impossible task to complete. Many criticized her as she was unable to meet those claims, making it difficult for Theranos to come clean about. Holmes’ experience is one of the many examples that reflect the consequences of confidence without substance.

Emotion vs facts

On the other hand, Moore finds that arguments displaying the most confidence often win a debate. If the goal is to persuade others, anecdotal and emotional statements appeal to an audience, gaining more support than objective, statistical, and factual claims. Still, winning a debate is not the same as solving problems. Falling for leaders who demonstrate a persuasive character without substance can be detrimental for the future.

If confidence can mask the incompetence and deceptions of leaders, how can we know who to support and who to believe in? Moore highlights that persuasive talks are often expressed through ambiguous optimism and assertive behavior.  It’s important to clarify and test others’ claims, ultimately choosing the person who is most capable and truthful.

As Moore says, “well-calibrated confidence, consistent with the facts, is most useful for calibrating expectations and informing decisions.”

Moore’s article was published in the Spring 2021 issue of California Management Review, a journal that publishes academic work that engages scholars and contribute to the practice of management. To learn more, please visit cmr.berkeley.edu.

 

How imperfect memory causes poor choices

McDonald's and Burger King signs
Photo: Peter Kneffel/picture-alliance/dpa/AP Images

Quick: Pick your three favorite fast-food restaurants.

If you’re like many people, McDonald’s, Wendy’s, and Burger King may come to mind—even if you much prefer In-N-Out or Chick-fil-A.

A new study from UC Berkeley’s Haas School of Business and UC San Francisco’s Department of Neurology found that when it comes to making choices, we surprisingly often forget about the things we like best and are swayed by what we remember. The paper, published this week in the journal Proceedings of the National Academy of Sciences, combines insights from economics and psychology with decision-making experiments and fMRI brain scans to examine how our imperfect memories affect our decision making.

“Life is not a multiple-choice test,” says Berkeley Haas Assoc. Prof. Ming Hsu, director of UC Berkeley’s Neuroeconomics Laboratory, who co-wrote the paper with Dr. Andrew Kayser, associate professor of neurology at UCSF, and lead author Zhihao Zhang, a Haas postdoctoral scholar. “Yet researchers traditionally give people a menu of options and ask them to choose.”

The findings break away from traditional economic models that assume people make rational decisions from all available options. In most situations, rather than choosing from a ready-made list, we conjure choices from our memory.

“While everyone knows that human memory is limited—and there’s a thriving market for reminder apps and Post-it Notes—scientists know surprisingly little about how this limit impacts our decisions,” says Zhang. Answering this question could hold implications for everything from conducting consumer research and crafting public policy to managing neurodegenerative diseases.

Forgetting favorites

To measure the influence of memory on decisions, the researchers examined people’s choices for different types of consumer goods, such as fast food, fruit, sneakers, and salad dressing. For each, they asked one group of participants to name as many favorite brands or items in the category as they could. They asked a second group to choose their preferences from a menu of options. Based on those results, they created a mathematical method to predict which items people would choose in an open-ended situation.

The most surprising takeaway was just how often people seemed to forget to mention items they liked best, choosing less-preferred, but more easily remembered items. “A lot of people name McDonald’s as their favorite, but many of those people don’t actually like McDonald’s as much as other brands,” says Kayser. In an open-ended situation, 30% of people said McDonald’s is their preferred fast food; yet for those given a list of restaurants, only half that many (15%) chose the Golden Arches, with the other half instead choosing restaurants such as In-N-Out or Chick-fil-A.

The researchers found similarly large differences between people’s preferences in open ended versus list-based choices in all the other types of consumer goods tested, both branded and nonbranded, such as fruit. “The magnitude of these changes was very surprising,” says Hsu. “The fact that so many people don’t mention their favorites really argues against the notion that we usually act in our own best interest, as standard economic models might have us believe.”

Surprisingly accurate predictions

To gain a deeper scientific understanding of how memory impacts decisions, the researchers next constructed a new mathematical model that combines economic models of decision-making with psychological models of memory recall. “Very little attention has been paid to connecting these two areas,” says Zhang. “By taking the best features of each, we found that we could make amazingly accurate predictions of how often people fail to choose their more preferred options due to their imperfect memories.”

In fact, the predictions were so accurate that the researchers thought they had made a mistake. “We only came to trust the findings after checking and repeating the experiments multiple times,” he said.

Brain scans show memory systems working

Understanding the role memory plays in decision making has implications for millions of people managing neurodegenerative diseases such as Alzheimer’s disease, says Kayser, who researches behavioral neurology.

“We know that memory declines as Alzheimer’s disease progresses. We also see that decision-making capacity diminishes in areas such as financial management. But we don’t yet have good models of how they might be linked, or even good ways to measure changes in decision-making capacity,” he says. “For neurologists, these are urgent questions.”

To nail down the role of memory retrieval in decision making, the researchers scanned the brains of a group of participants using fMRI (functional magnetic resonance imaging). Past neuroscientific research has shown that decision-making—which involves valuation—and memory are served by different brain systems.

“When people made open-ended choices in our experiments, we saw increased activity in memory retrieval regions of the brain and enhanced communication with valuation regions,” says Zhang. That didn’t happen when participants simply picked choices from a list: The valuation part lit up, but memory systems showed much less activity.

This provides neural evidence for the direct involvement of memory systems in open-ended decisions, and sheds light on the nature of suboptimal decisions in these situations.

“Based on these findings, it’s possible that Alzheimer’s patients are particularly vulnerable when decisions are open-ended,” says Kayser, “If so, this could motivate development of decision support systems that can alleviate these vulnerabilities.”

The research could also provide a more targeted way of designing “nudges” that help people expand their options without mandating specific choices. For example, “If we want consumers to switch to more sustainable species of fish, it might help to find a way to get people to consider other types of seafood they may have overlooked otherwise,” says Hsu.

###

Retrieval-Constrained Valuation: Toward Prediction of Open-Ended Decisions
By Zhihao Zhang, Shichun Wang, Maxwell Good, Siyana Hristova, Andrew Kayser & Ming Hsu
Proceedings of the National Academy of Sciences (PNAS), May 18, 2021

Media contact
Laura Counts
lcounts@haas.berkeley.edu
(510) 643-9977

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