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0 2 / 0 1 / 1 1 WINTER 2020/21 WINTER Plus: trust you Would a machine to pick a machine pick to a vaccine? The response to Black Lives Matter of expertise Thedownfall Can experts win back the public’s trust? public’s the win back experts Can (and possible salvation) RESEARCH-DRIVEN INSIGHTS ON BUSINESS, POLICY,AND MARKETS

THE DOWNFALL (AND POSSIBLE SALVATION) OF EXPERTISE WINTER 2020/21 1

d d n i . IMPROVE RANDOMIZED TRIALS NETWORKS ON Page 14 The University of Chicago Booth School of Business 5807 S. Woodlawn Ave. 60637 IL Chicago, 3 v o C _ 8

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8 2 IN WHOM DO oe Biden, the US president-elect, honesty and making clear the limits of our J has signaled clearly that expertise expertise,” says Murphy. will play a significant role in his Another article in this issue (page 38) WE TRUST? administration. His plan to take on explores trust from a different angle. COVID-19, Biden said in his victory Scientists are using machine learning speech, “will be built on a bedrock of to help in the hunt for the COVID-19 science.” But if the next US president vaccine, just one of the myriad ways that wants to fulfill his broad agenda—from algorithms have changed our lives, from fighting the pandemic and climate big experiments such as self-driving cars to change to resuscitating the economy— more prosaic examples such as Amazon’s he will need to convince many Americans Alexa. So are we more willing to trust to trust in experts. Millions do not, and algorithms than people? Researchers Biden’s election did not change that. including Booth’s Max Farrell, Tetsuya Kaji, The emergence of alternative facts, the Tengyuan Liang, Veronika Ročková, Panos use of social media to spread conspiracy Toulis, and others are seeking to define theories, and the perennial cry of “fake what questions ML can and can’t answer. news” have all helped erode trust in Once again, establishing the limits of science, expertise, and institutions. knowledge can inspire confidence. “That’s Our cover story (page 26) details the most dangerous part, not accounting “My head was how far expertise has fallen in the eyes for uncertainty,” says Booth’s Sanjog Misra. of so many in the United States. More At Chicago Booth Review, we want to be Americans would listen to family than a trusted source of information. We bring public-health experts when it comes you research, analysis, and commentary something I to whether to take a COVID-19 vaccine, and hope you turn to us for these, as well according to an August 2020 poll by as for additional context. Our website, Politico. Almost a third either don’t Review.ChicagoBooth.edu, is updated brought to work; think global warming is happening or regularly with new articles, charts, and aren’t sure. Meanwhile, a gulf of under- videos, and you’ll also find years of work standing separates expert economists archived there. Some of our most-read from the public. articles aren’t our newest but continue my heart and my But as the story explains, the situation to enlighten readers over time. If you is not beyond repair. Academic research- have comments about anything, old or ers have been exploring the issue of trust new, reach out by email, or via Facebook, gut I left at home.” from many angles. Among them, Chicago LinkedIn, Twitter, or Instagram. Booth’s Emma Levine and Celia Gaertig delve into how people react to advice, and Hal Weitzman Page 66 what we are most receptive to hearing. Executive director, Intellectual Capital And Booth’s Kevin M. Murphy separates Editor-in-chief, Chicago Booth Review not only fact from fiction but new analysis [email protected] from enduring knowledge. Uncertainty is a thread uniting their messages. “To Emily Lambert maintain confidence we should avoid the Director, Intellectual Capital most speculative predictions up front Editor, Chicago Booth Review and earn people’s confidence through [email protected]

Editor-in-chief Multimedia Rose Jacobs Brian Wallheimer Hal Weitzman producer John Kenzie Kotryna Zukauskaite Editor Josh Stunkel Sarah Kuta Faculty advisory Emily Lambert Video producer Michael Maiello committee Deputy editor Ray Zane Gary Neill John R. Birge Jeff Cockrell Contributors Sam Peet Lubos Pastor Data editor Peter Arkle Jill Priluck Jane L. Risen Chuck Burke Eric Butterman Michael Rapoport Social media Martin Daks Gregory Reid editor Áine Doris Judith Rudd Blake Goble Josue Evilla Bob Simison Copy chief Chris Gash Rebecca Stropoli Molly Heim Federico Gastaldi Jeff Sciortino Designer Glen Gyssler Vanessa Sumo Nicole Dudka Edmon de Haro Sébastien Thibault Review.ChicagoBooth.edu

COVER ILLUSTRATION BY JOSUE EVILLA Winter 2020/21 Chicago Booth Review 1 DEPARTMENTS

1 Editors’ letter 4 Feedback 74 The Equation DATAPOINTS COVERSTORY FOOTNOTES

7 The racial and ethnic 17 ‘The end 26 THE DOWNFALL 49 What actually helps gap in income shocks of Friedmanism’ (AND POSSIBLE SALVATION) women at work 9 When choosing where is premature OF EXPERTISE 53 Travel expenditures are to eat, race matters 17 Do parents play sent packing 9 Focus your feedback on favorites when investing Can experts win back 54 The avatars of the the future in kids? strategist 10 Teamwork counts more 18 The positive power of the public’s trust? By Ram Shivakumar for men than women social media influencers By Rose Jacobs 58 Debt still matters 11 US tax policy may cause 19 Could easier credit By John H. Cochrane year-end corporate speed the adoption of 62 When commitment shopping sprees energy efficiency? speaks volumes 12 Elisabeth Kempf says to 20 What revenge seekers FEATURES By Pradeep K. beware of polarization are really after Chintagunta in your office 20 How to pick a 38 Would you trust a machine to pick a vaccine? 66 How should companies 13 You can’t time the forecasting model Machine learning is being tasked with an respond to Black private-equity market 21 Banking regulators act increasing number of important decisions. Lives Matter? 14 Improve randomized differently under But the answers it generates involve a degree The Big Question trials on networks public scrutiny of uncertainty. 69 Is lying part of 15 Fake product news 22 How effective were By Emily Lambert business? draws in unsuspecting those stimulus checks? By John Paul Rollert consumers 23 Other COVID-19 insights 72 Should the ECB 16 Who is paying for the 24 A daily measure of prioritize jobs and the trade war? Not US people’s potential environment? consumers . . . yet exposure to COVID-19 The IGM Panel

Page 1 7 26 38 49 74

Featured Faculty

Heather Sarsons, the Neubauer Assistant Emma Levine, associate professor Marianne Bertrand, the Chris Pradeep K. Chintagunta, the Joseph T. Professor of Economics and the Diane of behavioral science and a Charles P. Dialynas Distinguished Service and Bernice S. Lewis Distinguished Service Swonk Faculty Fellow, joined the Booth E. Merrill Faculty Scholar, studies the Professor of Economics and a Willard Professor of Marketing, has been digging faculty in 2019. With research interests in psychology of altruism, trust, and Graham Faculty Scholar, is faculty into questions related to pricing, advertis- labor, personnel, and behavioral econom- ethical dilemmas—and has developed director of Booth’s Rustandy Center ing, and distribution channels. His current ics, Sarsons focuses on understanding a body of research on the tension for Social Sector Innovation, and research focuses on marketing in economic how norms, stereotypes, and biases between honesty and benevolence. This faculty director of the University of development, seeking to learn how market- influence labor-market outcomes and issue features several of her research Chicago’s Poverty Lab. Her research ing and its tools affect small businesses and inequality. We feature her latest findings findings, including the observation covers several fields, including labor entrepreneurs and whether they can be on teamwork—who benefits most? that guilt-prone people are the most economics, in particular race and used to improve public health in emerging (Page 10) trustworthy. (Page 26) gender discrimination. (Page 49) economies. (Pages 18, 62, and 66) FACULTY ILLUSTRATIONS BY JOHN KENZIE; BY ILLUSTRATIONS FACULTY REID GREGORY BY SYRINGE

2 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 3 LEARN FROM THE PAST

How powerful is financial inclusion? (Fall 2020) Raising the bar on An article that’s relevant especially now. It’s sad that depositors of Freedman’s Bank (a government-spon- high-impact, custom sored enterprise similar to Freddie and Fannie) were never made whole. But happy that such research is underway Executive Education to understand the economic legacy of American racism more broadly. Offered in various formats such as online, —@adityarulz26 in-person, or in a hybrid learning experience.

Find the articles to which these comments refer at THE AGE OF DISAGREEMENT Review.ChicagoBooth.edu. There are two Americas, and age is JOIN THE the divider (Fall 2020) CONVERSATION Voters drift right as they get Subscribe to our weekly wealthier, and wealth and age are email newsletter at correlated, but as inequality widens, I Review.ChicagoBooth.edu, wouldn’t expect age and wealth to be ACCESSIBLE WORLDWIDE TO MEET and follow us on social media: as tightly linked. Twitter —Ryan Kappedal YOUR REMOTE LEARNING NEEDS. @chicagoboothrev Facebook Do you think people get more @chicagoboothrev conservative, or does society &29,'KDVSHUPDQHQWO\FKDQJHGKRZRUJDQL]DWLRQVRSHUDWH7RKHOSWKHP get more liberal? I find myself getting Instagram PRYHDKHDG&KLFDJR%RRWKGHVLJQVDQGGHOLYHUVFXVWRPH[HFXWLYHHGXFDWLRQSURJUDPV PARTNER WITH @chicagoboothreview more conservative because I can’t keep up. My values have become more WRPHHWRUJDQL]DWLRQVÜVSHFLILFREMHFWLYHV:HZRUNFORVHO\ZLWKRXUFOLHQWVWRH[SORUHWKHLU CHICAGO BOOTH LinkedIn: IN FOX THEY TRUST Chicago Booth Review liberal with age, but society changes UHPRWHOHDUQLQJQHHGVDQGRIIHUYDULRXVIRUPDWVVXFKDVLQSHUVRQRQOLQHRUK\EULG faster than me. VROXWLRQV Contact us to learn more YouTube: —@danielmabuse Fox News causes viewers to disregard Chicago Booth Review social distancing (Fall 2020) about our customized approach. I don’t see how you can compare. 2XUSURJUDPVKDYHEROVWHUHGVHQLRUPDQDJHPHQWVÜOHDGHUVKLSVWUDWHJ\DQGGHFLVLRQ WE WELCOME People born 20 years apart have Can they quantify how many PDNLQJVNLOOVÚDQGKHOSHGGULYHJURZWKDQGLQQRYDWLRQIRUFRPSDQLHVJOREDOO\:HÜYH +1 312.464.8732 different backgrounds. Who’s to say lives were lost due to viewing [email protected] LETTERS that the kids who grew up in the age Fox News and ignoring health-care KHOSHGRUJDQL]DWLRQVUDQJLQJIURPWRSFRQVXPHUSDFNDJHGJRRGVFRPSDQLHVWRJOREDO of Ronald Reagan will change in the professionals’ guidance? ILQDQFLDOVHUYLFHVILUPV:RUNLQJZLWKERWKSXEOLFDQGSULYDWHVHFWRUFOLHQWVZHÜYH ChicagoBooth.edu/custom-program Send email to same ways as those who grew up —Whitney Schumacher FUHDWHGJHQHUDOPDQDJHPHQWSURJUDPVIRUH[HFXWLYHVVSDQQLQJWKH$PHULFDV$VLD [email protected] during the Great Recession? or send letters addressed to —Michael Anderson I’m looking forward to the (XURSH$IULFDDQGWKH0LGGOH(DVW Chicago Booth Review at any follow-up study that concludes of the following addresses: There’s a saying that goes CNN causes viewers to riot and loot. 2XUSURJUDPVDOORZOHDGHUVWROHDUQIURPUHQRZQHG&KLFDJR%RRWKIDFXOW\DQGKHOSWKHP something like this: “If you don’t —Mike Ossowski 5807 S. Woodlawn Ave. believe communism when young, you HOHYDWHWKHLUVNLOOV3DUWQHUZLWKXVDQGHPSRZHU\RXURUJDQL]DWLRQZLWK7KH&KLFDJR Chicago, IL 60637 don’t have a heart; if you still believe Sounds like a class-action suit Approach™. One Bartholomew Close communism when old, you don’t have waiting to happen. Barts Square a brain.” —Dan Wise London EC1A 7BL —@MiltonMai United Kingdom The least surprising research I I’m one of those crazy people have seen in quite a while. 168 Victoria Road bucking the trend. I’m 45, and I —@evanpeet Mount Davis have no intention of becoming conser- Hong Kong vative, at least not the way it’s come to Nominating themselves for a Comments may be edited be defined in the United States. Darwin Award. for clarity and/or space. —Matt Jones —John Schofield

4 Chicago Booth Review Winter 2020/21 Focus your feedback on the future Page 9 // Teamwork counts more for men than women Page 10 Who is paying for the trade war? Page 16 // How effective were those stimulus checks? Page 22

How do we recover from COVID-19? The pandemic continues to change the economy and the world. For the latest findings, The racial and insights on how to get through this crisis, and ethnic visit our collection online. gap in income shocks Volatility hits Black and Hispanic families harder

he majority of US families are T underprepared for major changes in household income. According to the government-sponsored Current Population Survey, 42 percent of Americans don’t have money set aside to weather emergen- cies or unexpected expenses. But Black and Hispanic households are particularly sensitive to income shocks, according to research by University of Chicago Harris School of Public Policy’s Peter Ganong and Damon Jones; Chicago Booth’s Pascal Noel; and JPMorgan’s Diana Farrell, Fiona Greig, and Chris Wheat. This sensitivity extends well beyond atypical or one-off shocks such as being laid off. Looking at the kinds of typical fluctuations that affect families from one month to the next—including seasonal work, and changes in working hours or pay—the researchers find that Black and Hispanic households are 20–50 percent more Review.ChicagoBooth.edu/covid-19 sensitive to income volatility than their white counterparts. The researchers’ analysis suggests policy makers should be particularly worried about Black and Hispanic households, finding that these families are up to twice as vulnerable as white households to normal changes in their disposable income.

ILLUSTRATION BY FEDERICO GASTALDI Winter 2020/21 Chicago Booth Review 7 To break down the impact of normal income fluctuation, the researchers find. median white household, and this leads demographically similar to the diner’s FOCUS YOUR income volatility by race and ethnicity, For every 10 percent reduction in income to greater disruption and hardship in an When residential neighborhood by one the researchers created a novel data set in a given month, the average family cut income shock. standard deviation. An Asian diner was FEEDBACK ON using bank and voting records from three spending by 2 percent. The findings are significant in the 25 percent more likely to choose the US states: Florida, Georgia, and Louisiana. But this sensitivity to income change COVID-19 pandemic, as unemployment choosing restaurant in the more-similar area, THE FUTURE Chase bank-account records provided data was up to 50 percent greater among Black is particularly acute among Black and they estimate, and a Black diner was from checking accounts, credit cards, and and Hispanic households, who had to cut Hispanic workers. where to eat, 51 percent more likely to do so. For WHEN MANAGERS give customer debit cards over 2012–18. The their spending more when faced with the Even if Black and Hispanic families white and Hispanic diners, whom the performance-improvement voting records, captured in 2018, included same income shock as white households. suffered the same amount of job or researchers didn’t distinguish between feedback to employees, they race, which voters self-identified as part of Families with greater financial resourc- income losses as white households, race matters when classifying Yelp users’ profile presumably want the conver- a mechanism designed to curb discrimina- es were substantially less vulnerable to their costs would likely be higher, says photos, the estimate was 31 percent. sations to result in positive tion. In total, the matched sample con- changes in income. In fact, when Black Noel. Add to this the fact that the health ew Yorkers are more likely to When the researchers compared changes—not to inspire tained data from nearly 2 million families. and Hispanic families had the same access consequences of COVID-19 are hitting Nchoose to eat out at a restau- the trade-off between demographic defensiveness, excuses, or To ensure the findings from these three to liquid assets as whites, they reacted to these families, who are also suffering rant in a neighborhood with difference and transit time, they again skepticism of the managers’ states represent the country as a whole, the income volatility the same way. more in terms of unemployment than demographics that reflect their own observe the same behavior. For an point of view. researchers compared racial differences in This suggests that differences in spend- white households, disproportionately individual race or ethnicity, find Asian diner to choose a restaurant that Offering forward-looking their matched sample with the differences ing when income is in flux have their hard, he notes. The research findings Columbia’s Donald Davis, Chicago was in a more demographically dif- feedback can help keep such observed nationally across checking-ac- roots in the racial wealth gap, which stems provide another reason to be worried Booth’s Jonathan Dingel, Pompeu ferent neighborhood by one standard conversations productive, count balances and public records such as from a long history in the United States about the disparities across racial groups Fabra University’s Joan Monràs, and deviation, the restaurant had to be 21 suggests research by the Federal Reserve’s Survey of Consumer of barriers that have prevented Black in the US today.—Áine Doris Princeton’s Eduardo Morales. percent closer in terms of travel time. Humanly Possible’s Jackie Finances. They were broadly similar. and Hispanic families from accumulating Their research illustrates that For a Black diner, the calculation was Gnepp, Chicago Booth’s Peter Ganong, Damon Jones, Pascal Noel, Diana Farrell, US households, irrespective of race, assets. The median Black household has Fiona Greig, and Chris Wheat, “Wealth, Race, and Consumption although it has been illegal to discrim- 44 percent. Joshua Klayman, Victoria Smoothing of Typical Income Shocks,” Working paper, had a significant sensitivity to normal only one-sixth of the liquid wealth of the April 2020. inate on the basis of race in the United Transit time may play some small University of Wellington’s Ian States for more than a half century, role, Dingel says, but much of the main O. Williamson, and University With unemployment, a different spending outlook along racial lines some aspects of American life, such as finding is due to social frictions, the fact of Chicago’s Sema Barlas. eating out, remain fragmented along that demographic differences tend to Performance-improvement Black and Hispanic households cut their everyday spending more than white households did over the year following a job loss. racial lines. predict restaurant-visit decisions. These feedback often fails when In the 1950s and ’60s, protesters may result from friendship networks managers spend too much Income levels before and after unemployment Spending on food and other nondurables pushed to desegregate spaces such as if people frequent restaurants near time diagnosing or analyzing 100% = five months before unemployment-insurance 100% = five months before unemployment-insurance buses and lunch counters. The Civil friends and family who have similar what went wrong in the past, payments began payments began Rights Act, passed in 1964, prohibits demographics. The results could also according to the researchers. 100% 100% discrimination on the basis of race or reflect information frictions: someone When managers and employ- ethnicity in public accommodations. in a white neighborhood might not ees talk about possible next But in terms of consumption venues be as aware of their dining options in steps and solutions, however, such as restaurants, how racially Black neighborhoods, although Dingel employees tend to be more 98% integrated are we? points out that information about all receptive to the feedback and The constraints of traditional data restaurants are easily available on Yelp. report greater intention to act sources have made this question diffi- One result of the continuing segrega- on it. cult to tackle. Public consumption sur- tion is that people miss out on having Recipients respond just 90% 96% veys do not typically capture business shared experiences in spaces such as as well to predominately and location data along racial lines. restaurants, where casual contacts could negative feedback as they do But Davis, Dingel, Monràs, and Morales help break down stereotypes. Also, in to positive feedback, so long used the online review platform Yelp to gentrifying areas, existing residents may as the conversation focuses 94% analyze dining choices of New York City find themselves with fewer places to primarily on how the recipient US residents, culling information about shop or eat out. When the researchers can best move forward, the households home and work locations and racial computed the change in welfare that research suggests. identities from profiles and more than Harlem residents would experience if “Most organizations and 80% 92% Black 18,000 restaurant reviews between the area were to become more like the most managers want their 2005 and 2011—examples of the kind whiter, richer Upper East Side, they workers to perform well,” write of “digital exhaust” often generated by find a significant decrease in predicted Gnepp, Klayman, Williamson, Hispanic 90% smart devices and online platforms. patronage of restaurants on the basis of and Barlas. “Most workers They find that while consumption the associated demographic changes. wish to succeed at their jobs. White choices tend to be less segregated than “The segregation of consumption Everyone benefits when feed- neighborhoods themselves, it’s still that we document underlines the role back discussions develop new 70% 88% possible to use the racial composition of race and ethnicity in our everyday ideas and solutions and when of a neighborhood to predict the race lives. Lack of interactions among the recipients of feedback are of consumers most likely to patronize diverse consumers in consumption ven- motivated to make changes its restaurants. Controlling for the time ues is both a cause and a consequence based on those.”—Sarah Kuta 86% it takes to travel to eat, the researchers of the fragmentation of American life Go to Review.ChicagoBooth.edu to read a longer 5 5 105 5 10 analyzed the choice of a diner opting along racial and ethnic lines,” Dingel version of this article. months Payments months months Payments months between two restaurants that were says.—Áine Doris Jackie Gnepp, Joshua Klayman, Ian O. Williamson, before begin after before begin after identical except for the neighborhood: and Sema Barlas, “The Future of Feedback: Donald Davis, Jonathan Dingel, Joan Monràs, and Eduardo Morales, “How Motivating Performance Improvement through Ganong et al., 2020 one was in an area that was more Segregated Is Urban Consumption?” Journal of Political Economy, August 2019. Future-Focused Feedback,” PLOS ONE, June 2020.

8 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 9 Then, considering the degree of US TAX POLICY 33 countries, they observed collaborative work and reward for that a similar pattern of higher work—and after controlling for factors MAY CAUSE YEAR- fourth-quarter spending. such as coauthor seniority and length Drilling into the US data, of time to tenure—they compared the END CORPORATE they looked at what happened results for men and women. after the Tax Reform Act of They find that, all else being equal, SHOPPING SPREES 1986 reduced the marginal men and women who solo authored incentive to spend at the most of their work had similar tenure COMPANIES take various end of the year by, among rates. That changed when the research- measures to reduce their tax other actions, repealing a ers accounted for collaborative papers, burdens—including setting generous investment tax however. The tenure gap between men up in countries charging credit. When the law went into and women became more pronounced lower rates or working with effect, companies decreased the more women coauthored. Each certain banks. their average fourth-quarter additional piece of coauthored research Many may also go on spending by 5–10 percentage correlated with a 7.4 percent increase end-of-fiscal-year shopping points, which suggests they in tenure probability for men but only a sprees in an attempt to had been spending at least in 4.7 percent increase for women. minimize taxes, suggests part to minimize their tax bills. The difference in credit allocation research by University of The research also indicates explains 40 percent of the gender Illinois’s Qiping Xu (a recent that companies have an gap in tenure rates, the researchers graduate of Chicago Booth’s “option value motive” to delay estimate. It also explains 65 percent of PhD Program) and Booth’s spending until the end of the the gap that remained after controlling Eric Zwick. Their work provides fiscal year, because they can for average paper quality, citations, more evidence of how wait until then to see where tenure and PhD institution rankings, taxes can affect corporate they are positioned taxwise and economic subfield. decision-making. and can then make a decision The gender of a woman’s coauthor The spending pattern about whether purchasing will may matter, the research suggests. isn’t immediately evident, pay off in terms of minimizing When women coauthored papers with in part because companies taxes. The better business men, they were less likely to receive have different fiscal years. Xu has been and the more taxes tenure compared with similarly situat- noticed it when parsing the companies expect to owe, ed men who also coauthored with men. data for a different project. the greater the incentive for The gender gap narrowed significantly The researchers wondered, capital investment. It helps credit to men, a pattern that they say for women when all the coauthors on did the pattern show compa- that for tax-deduction purposes, contributes to and helps maintain gender their papers were also women. nies trying to minimize their year-end investments are Teamwork counts more segregation in certain occupations. But that doesn’t necessarily mean tax bill? treated as if the capital goods The researchers turned to an industry that it is better for women economists When companies invest in had been put into use at for men than women they know well: academic economics, to write papers alone or only with capital goods, they can start midyear, thus magnifying the which has a large tenure gap between other women, Sarsons explains. charging off depreciating tax benefits, and providing tanford’s Edward Lazear and Kathryn men and women, as well as a growing Women are greatly outnumbered in equipment against profits, more incentive for a late S Shaw demonstrated in 2007 that Increase in economics amount of group work. economics, and there are relatively reducing taxable income. shopping spree. businesses and other organizations To quantitatively assess researchers’ few papers coauthored entirely by The allowable depreciation There are ramifications for were increasingly relying on group work. researchers’ tenure work, Sarsons, Gërxhani, Reuben, and women. And besides being imprac- deductions are spelled out the interplay between tax pol- Since then, such work has become a rates with each extra Schram looked at the number of papers tical, restricting coauthors only to in tax rules, and there’s an icy and spending. Lawmakers mainstay, especially in the technology and coauthored paper produced by academic, research-focused women could potentially have other incentive to invest near the proposing tax changes often engineering industries. economists who were up for tenure over a negative implications. end of the fiscal year because invoke purported benefits for But this brings some challenges when 20-year period. They constructed a data set Rather, workplaces, as opposed to a company can realize future the economy. The pattern of it comes to assigning credit for work +7.4 using the curricula vitae of economists who individuals, may draw the most useful deductions early. year-end investment spikes well done, the kind of credit that can percentage were up for tenure between 1985 and 2014 lessons from the research. The findings Xu and Zwick looked at that Xu and Zwick document lead to promotions and raises. Say five points at 23 of the top PhD-granting universities suggest that universities, and indeed Compustat data on most US ripples through industries people work together on a project. Who for men in the United States, homing in on schools all workplaces, need to develop better companies from 1984 to 2013— supplying capital goods, did what? where research was the greatest factor systems to establish who did what in excluding small companies, as orders dry up in the first When an employer can’t directly +4.7 in promotions. They collected historical group work, says Sarsons, who adds financial companies, and quarter and producers are observe each individual’s contribution to faculty lists and took other steps to locate that employers need to “slow down utilities. Because companies forced to build up speculative for women a team’s results, demographic character- anyone who had gone up for tenure. and think about whether they’re typically report accumulated inventories each year in istics may come into play and affect who To assess the quality of work, they holding people to different standards.” spending, the researchers anticipation of a fourth-quarter gets credit, suggests research by Chicago looked at the rankings of journals in which While it’s difficult to write policies that backed out quarterly rush. This behavior could Booth’s Heather Sarsons, European those papers were published, as well as enforce fair evaluations, doing so could spending. Doing so, they saw affect the efficacy of tax University Institute’s Klarita Gërxhani, the number of times each paper was cited be one step in addressing differences in that average fourth-quarter changes.—Eric Butterman New York University Abu Dhabi’s Ernesto in other research. And to track career labor-market outcomes between men The spending capital outlays exceeded Go to Review.ChicagoBooth.edu to read a longer Reuben, and University of Amsterdam’s trajectory and outcomes, they recorded and women.—Martin Daks pattern has average capital spending in version of this article. Arthur Schram. Their work finds that Sarsons et al., 2020 whether or not the economists in question ramifications for the first three quarters by 37 Go to Review.ChicagoBooth.edu to see citations for research Qiping Xu and Eric Zwick, “Tax Policy and Abnormal employers are more likely to assign received tenure. ZUKAUSKAITE KOTRYNA BY ILLUSTRATION mentioned in this article. tax policy. percent. Analyzing data from Investment Behavior,” Working paper, June 2020.

10 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 11 OUR SEASONALLY Q4 ADJUSTED Q&A

These analysts even sorted into YOU CAN’T TIME investing in a stock market industries. For example, an industry index fund. A timing strategy such as energy was primarily THE PRIVATE- for private equity does not covered by Republican analysts, deliver much better returns while the utilities industry had more EQUITY MARKET than an untimed strategy. Democratic analysts. Each of the The researchers find, for three ratings agencies also had a THE PERFORMANCE of example, that a “neutral,” different share of Democrats and private-equity funds tends to nontiming strategy might be Republicans. S&P had a higher share go in cycles—periods of high expected to pay back $1.80 of Democrats; Moody’s had a higher fund raising are followed by for every dollar invested in a share of Republicans. Fitch was periods of low returns. buyout fund. Meanwhile, a somewhere in between. But timing PE invest- countercyclical strategy as Elisabeth These patterns have inspired us ments, like timing public highlighted in the paper—one to dig deeper into how the sorting markets, is difficult to do, ac- that tries to time the market Kempf says has changed over time, and how it cording to University of North by committing more money affects companies. We’re looking Carolina’s Gregory Brown, when overall commitments at executive teams and their University of Virginia’s Robert are low—would pay back just to beware of political homogeneity. S. Harris, Burgiss’s Wendy 6 cents more, or $1.86. For VC Hu, University of Oxford’s Tim funds, the picture is similar, polarization Wouldn’t that definitely Jenkinson, Chicago Booth’s though some timing strategies be bad? From a firm’s Steve Kaplan, and Duke’s can actually yield slightly perspective, ex ante David T. Robinson. worse returns than no timing, in your office it’s not obvious. If people have The researchers’ work, the researchers find. similar ideologies, maybe they work based on nearly 30 years That’s because the PE Associate professor of finance better together and there’s a better of data, demonstrates that system gives the fund manager information exchange. On the other investors can derive only all the authority to decide You studied whether hand, you might be missing an “modest gains, at best” when to buy or sell a particular political bias creeps important view of the world, and from attempts to time the investment and for how much. into credit ratings in the seeing both sides could help you PE market. That’s because The limited partners that United States. What did you find? make more-efficient decisions. It investors’ timing can’t be contribute money to the PE We saw that alignment with a given could also be that the effect changes precise. No matter when fund can’t make those choices. president affected the views of credit over time. Perhaps when the world they commit money to a They choose only when and analysts, and more surprisingly, had real is not as divided, it’s OK to have fund, they don’t control how much to commit to a fund consequences for companies. It actually homogeneous teams, but when we’re when the fund actually puts in the first place. moved prices and, therefore, can influ- divided, these negative effects start their money into or pulls it This system is aimed at ence a firm’s investment decisions. to show up more. The preliminary out of a particular invest- giving limited partners the While a Republican president is in data on time-series trends indicate ment. The fund’s manager best possible returns by office, if a firm is rated by a Democratic that polarization has increased over makes those decisions. allowing them to piggyback analyst, that firm could have an increase time on teams. The question about In fact, attempts at timing on a fund manager’s in its cost of funding, not because it’s firm consequences, or firm behavior, may be more trouble than investing acumen. But it also fundamentally riskier but because is ongoing. they’re worth, the researchers creates a constraint. Unlike it’s covered by an analyst who has a suggest. The resulting swings in public markets, where grimmer view of the economy. We How did you become in- in an investor’s allocation of investors can buy and sell quantified these effects. terested in polarization? capital could lead to organiza- immediately on the basis of Something else we noticed, which I fell into the topic during tional challenges, they write, their own decisions, in private was quite stark in the data, is that my PhD when studying the effects of making it more difficult for equity, some of the most analysts tend to sort into companies tort lawsuits. I was in the Netherlands, investors to maintain long- important decisions are out and industries on the basis of their and until the paper came out, I didn’t term relationships with the of their hands. political affiliation. know that the way people think about fund managers they deal with. As a result, the researchers tort lawsuits in the US depends on what The researchers used say, PE investors “face political camp they’re in. Republicans Burgiss data on cash flows significant delays and un- So ratings analysts are tend to say they are frivolous and from more than 3,500 PE certainty” and “commitment forming Democratic predatory; Democrats tend to say they funds, both buyout and VC risk.” In fact, they write, the and Republican groups? protect consumers and investors. I funds, dating back to 1987. findings suggest there can Political-science research suggests that didn’t have that association at all, and it They created a range of be better ways than timing polarization creeps into all aspects of made me think more of the importance investing strategies under for investors to earn higher our life, but the workplace has been of adding this political dimension. different timing approaches PE returns—investing in VC considered an area where ideologies Polarization is creating a lot of Investors and conditions and analyzed funds that have experienced still mix and people are forced to questions for economists. It’s good for attempting to the results an investor could managers, for instance. interact with the other side. But talking the research agenda, but the goal of market time have expected from each. —Michael Rapoport to analysts, we find they tend to work the research is to find ways to better can derive only They find that untimed PE Gregory Brown, Robert S. Harris, Wendy Hu, Tim with people who have similar views of understand what the consequences modest gains, returns have tended to be Jenkinson, Steve Kaplan, and David T. Robinson, “Can Investors Time Their Exposure to Private Equity?” the world. are—and what we can do. at best. better than the returns from Journal of Financial Economics, August 2020.

12 Chicago Booth Review Winter 2020/21 PHOTOGRAPH BY JEFF SCIORTINO Winter 2020/21 Chicago Booth Review 13 But in practice, one participant’s of the experimental group on one axis and between receiving the treatment and FAKE PRODUCT data―before and after the Improve assignment can affect how another every possible combination of treatment changes in the outcome. FTC action―from Comscore, participant behaves, a phenomenon assignments on the other. If a social media To illustrate how their method works, NEWS DRAWS IN a media measurement and known as interference. If Facebook company wanted to test how promotional the researchers used data from a large- analytics company. She ana- randomized assigns two users to different experimen- content affects user engagement, for scale policing experiment in Medellín, UNSUSPECTING lyzed referral domains to see tal conditions, and those users happen example, all the users in the experiment Colombia. In the experiment, a different whether potential customers to be friends, the behavior of one could would be arrayed on one axis and all research team, led by Daniela Collazos CONSUMERS still went to a product page trials on affect the other’s, undermining the social the content options, or combinations of of the Secretariat of Security of Bogotá, after the FTC shut down fake media platform’s ability to draw classical options, would be on the other. started with a list of 967 street segments SOME YEARS AGO, an news sites. She finds that networks causal conclusions. The researchers then use an algorithm (each one roughly a block) identified article started showing up in after the sites were closed, While this can be problematic, iden- to identify a subset of experimental as hotspots for crime, and randomly news feeds from a seemingly visits to their related product andomized experiments have long tifying how experimental units interact, units and treatment assignments, which selected 384 to receive an increased skeptical investigative reporter sites such as acaireduce.com R been a cornerstone of scientific re- and testing how these relationships they dub a clique, that are relevant to police presence for six months. who claimed to have tested the dropped between 6 percent search. And many tech companies affect outcomes, can also make experi- the hypothesis being tested. (For the Collazos’s team aimed to understand efficacy of an acai berry–based and 15 percent. run randomized tests to learn from the ments more informative and valuable. social media example above, a clique how additional policing would affect colon cleanse. Posted on a She then separated huge numbers of data their customers Research by Chicago Booth principal might include females aged 18–29 with crime on the treated blocks themselves, website called onlinenews6, these visits into three generate. In 2019, Google conducted researcher David Puelz, Booth’s Panos friends or followers who are exposed to as well as how this effect would spill the article claimed the groups: those that arrived nearly half a million experiments on Toulis, Stanford’s Guillaume Basse, and a particular type of advertisement.) This over to other blocks that didn’t have reporter lost 25 pounds in organically through searches web search alone. University of California at Berkeley’s clique is then used to conduct a random- increased policing. only four weeks. or by entering URLs, those In randomized testing, researchers Avi Feller demonstrates a graph-based ization test—a statistical procedure used Puelz, Basse, Feller, and Toulis used But the website was not that came from fake news ad randomly assign different treatments to method that can help experimenters to determine how much variation should their method to investigate how the owned by a legitimate news sites, and those that came different people (or other experimental incorporate interference into their be expected between experimental units treatment effect varied between blocks organization, and the reporter from online ads. Although units) and analyze the outcomes, which causal analyses. in each treatment group if the treatment that didn’t receive hotspot treatment but didn’t exist. Instead, it was part visits from fake news ad sites are all theoretically independent of In their method, the researchers has no effect. Any more variation than were within 125 meters of a block that of a deceptive promotion by a dropped (mechanistically, each other. construct a graph showing each member that suggests there’s a causal relationship did, and those that were at least 500 company that was selling the since those sites had been meters from a treated block. They created acai cleanses and hoping to shuttered), and organic visits Visualization of an experiment’s spillover effects a graph with all of Medellín’s 37,000 profit off of consumers’ trust also dropped, there was an Using data from a policing experiment in Medellín, Colombia, the researchers constructed a graph in which individual square blocks street segments on one axis and about in objective news. uptick in people coming in represent portions of the city’s entire grid of streets. To analyze whether additional policing in crime hotspots had a spillover effect 10,000 possible combinations of policing Long before US president through regular online ads, in nearby areas, they applied color coding to visualize measurable changes in crime on other streets within a specified distance. assignments on the other. They then Donald Trump brought the implying that certain people homed in on a specific clique of units and phrase fake news into the were already in the market treatments relevant to their question. The mainstream, the Federal Trade for such products and would analysis was complicated by the fact that Commission used it to justify find the questionable product Places that could experience spillover effects from an experiment taking place in a nearby location treated blocks were heavily concentrated shuttering 150 websites from pages no matter what. An area that is close to a place receiving An area that is sufficiently Other in Medellín’s city center. 10 companies that made “false Additionally, websites that the experimental treatment (within 125m) far away (at least 500m) streets Using their technique, the researchers and unsupported claims” and contained words such as acai, find evidence for a spillover effect, or deceptively represented their diet, and cleanse, which were Each column = one spatial unit in the city’s network of streets “a decrease in crime of street segments websites as objective news. related to the types of prod- surrounding an area with increased law Chicago Booth’s Anita Rao ucts sold in the study, also enforcement/community policing,” which finds that not only do these experienced increased traffic. they note is consistent with the findings of types of fake news websites To the extent these sites are prior research. change readers’ beliefs legitimate, the FTC shutdown Unlike more-traditional approaches about the products they had a beneficial effect on to dealing with interference, which deceptively promote, but they consumers. Moreover, overall sometimes use models to estimate how can separate consumers from transactions on regular Each row = different experimental assignments their money. domains such as Amazon one possible interact with each other, the graph-based While “native advertising” increased, perhaps because treatment approach doesn’t require experimenters can often mimic legitimate fake news had diverted time scenario in to make any assumptions. It can also be news and is considered and money from legitimate the policing applied to a broad range of experimental legal so long as it is properly sources and products. experiment settings, from e-commerce to policing to identified, the FTC determined Could fake news be used traffic congestion. “The method itself is that these 10 companies’ to trick people into purchas- completely general, and can be applied pitches conveyed “to consum- ing scam treatments for to virtually any setting where there is a ers expressly or by implication COVID-19? Rao says that while randomized experiment and interfer- that they’re independent, her research doesn’t have data ence,” Puelz says. impartial, or from a source on this specifically, “people, SNAPSHOT OF FULL GRAPH ALTERNATE SNAPSHOT That generality may be important for other than the sponsoring when more susceptible, are A grid of 100 × 100 squares from A view that filters out the “other streets” category the growing number of businesses hoping advertiser―in other words, willing to hold onto anything a larger 37,055 × 10,000 graph* in order to highlight the streets under study to use randomized experiments to reduce more susceptible, that they’re something other that might seem to be a the ambiguity around the effects of new are willing to hold than ads.” cure.”―Brian Wallheimer decisions and ideas.—Jeff Cockrell onto anything Rao, who has previously *If the researchers’ full graph of more than 370 million data points were the size of this black rectangle, Anita Rao, “Deceptive Claims Using that might seem analyzed false claims about Fake News Marketing: The Impact on these snapshot graphs (10,000 data points each) would be the size of this pink square. Go to Review.ChicagoBooth.edu to see citations for research Consumers,” Working paper, Puelz et al., 2019 mentioned in this article. to be a cure.” products, examined 2010–11 April 2020.

14 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 15 goods coming from countries with the Before the parents allocated their tick- new tariffs and tracked those products Do parents play ets, they were asked to answer questions to store shelves. As of this past April, about their children’s abilities. How did the tariffs hadn’t forced China or other favorites when they think each child would score on the countries to lower prices significantly, test without tutoring, and how might that and the data show that American investing in kids? score change with tutoring? retailers were bearing the brunt of the After running a test lottery, to ensure taxes, at least in the short run. ducation can affect a child’s lifetime the study participants understood the The researchers estimate that foreign E earning power—and, of course, costs concept of returns maximization, the re- companies dropped their prices only ‘THE END OF money. So when a family has multiple searchers gave the parents five scenarios about 1 percent in response to a 20 children and financial limitations, parents for ticket allocation, explaining how each percent US tariff. That left 19 percent for FRIEDMANISM’ often face a decision about how much to would maximize total earnings, minimize US importers to pay. US-based exporters, spend on each child. the earnings gap between children, or however, had to lower their prices by IS PREMATURE While they might not articulate their de- reduce allocation inequality. For example, about 5 percent on goods subject to a cision as an economist might, they choose in one scenario, the higher-ability child retaliatory tariff of 15 percent, they find. “By presenting between several options, economically would receive a reward that was 10 The research suggests the asymmetric Friedman as a speaking. They may seek to maximize their times higher, per test point, than the response of US import prices and US narrow-minded investment in their children, by spending lower-ability child. In another scenario, export prices reflects differences in the money in a way that will return the most in only the lower-ability child would receive types of goods targeted by the tariffs. US caricature, critics terms of future income. Alternatively, they a lump-sum payment after taking the test. companies may have few places to look of capitalism can could spend an equal amount on each child, After one child per family received an for alternatives to the Chinese products push their own or they could spend more on the one that’s hour of tutoring, all the children took the they import, which means Chinese further behind to help that child earn the test, and payments were distributed on suppliers may not face competitive theory of how it same amount as his or her siblings one day. the basis of what parents chose in one of pressures to lower prices to offset tariffs. should operate, and Which option do families most frequent- the five scenarios, which the researchers But China does have alternative sources it’s not difficult to ly choose? Research by the University of randomly assigned to each family. This to the US for soybeans, for example, Delaware’s James Berry, Chicago Booth’s ensured that a variety of responses could which puts US suppliers under greater argue that theirs is Rebecca Dizon-Ross, and University of be measured, even though each family pressure to lower prices. superior when the Colorado Denver’s Maulik Jagnani finds could experience only one scenario. The impact of these rising import alternative has been that parents demonstrate a strong interest Parents showed some preference for costs on consumer prices has thus far in treating their children equally. maximizing total returns, with 45 percent been mild, the researchers find. They presented as a straw The researchers worked with 300 fam- of allocations being all or nothing, in used data from two major multichannel man. But Friedman ilies in rural Malawi who had at least two which the parents guaranteed tutoring retailers to estimate that a 20 percent never advocated children in grades five to seven, telling to one child or the other. However, tariff resulted in only a 0.7 percent them that two of their children would take they also demonstrated an interest increase in the prices of affected that companies a math test and would receive monetary in allocation equality, enough so that Who is paying for the trade war? products, meaning the merchants were exploit stakeholders. awards on the basis of their scores. But they sacrificed earnings. A significant absorbing much of the higher tariff by He argued that it parents were also given 10 lottery tickets 35 percent of choices leaned toward Not US consumers . . . yet realizing thinner profit margins. and told one of those tickets, randomly se- allocation equality. Importers can avoid charging is legitimate for a lected, would provide an hour of tutoring This aversion to inequality led to aver- S president Donald Trump’s goal of on Chinese steel, and Chinese steelmak- higher prices or dampening their company to focus for one child. The parents had to allocate age earnings per child of approximately Ulowering the American trade deficit ers responded by reducing steel prices by profit margins by sourcing goods from on increasing profits the tickets between their children. 40 percent less than if the parents had kicked off a tit-for-tat tariff war 25 percent to keep their products com- nontariffed countries, and that seems In general, parents who care only about simply sought to maximize the return on with Canada, the European Union, and, petitive. In this hypothetical scenario, to be happening, the researchers write. because the only maximizing returns should invest more their investment. The shortfall amounted most prominently, China. The United the burden of the tariff would fall entirely China’s share of tonnage shipped to way it can do so, in whichever child they think will produce to 90 percent of an adult’s daily wage in States imposed tariffs of 10–50 percent on China in the form of reduced profits, those retailers before the tariffs was at least in the long the greatest return on investment, the rural Malawi. A follow-up survey finds on about $326 billion of annual imports with US importers paying the same price 80–90 percent, according to the study, researchers note. By contrast, parents who that few parents reallocated unequal test from China, including washing machines, and the US government earning more but the share dropped to 60–70 percent term, is if it treats care most about their children earning earnings among their children, meaning solar panels, aluminum, and steel. China revenues. after the tariffs. stakeholders seri- equally should initially allocate resources there is no evidence they were concerned retaliated, slapping its own tariffs on US If, instead, Chinese steelmakers left There’s also evidence that between ously. . . . Thus, while toward the lower-ability child, the idea about an income gap. automobiles, airplanes, and soybeans, their prices unchanged, the steel would the time Trump announced the tariffs being that this child can catch up with the The findings could influence educa- among other items. simply become 25 percent more expen- and the time they went into effect, US last year’s Business higher-ability child in earning potential. tional-policy design, the researchers Two years in, has the US avoided sive for US buyers. Facing an increase in importers front-loaded their purchases Roundtable state- And those concerned with investment suggest. “For example, if a gifted and damage from this trade war? No, suggests their costs, firms in the manufacturing to beat the new duties. As retailers work ment was heralded equality should allocate resources equally, talented program often only affects one research by Harvard’s Alberto Cavallo and retail sectors would have to either through inventory and restock goods regardless of abilities and outcome. In child per household, providing parents and Gita Gopinath, Chicago Booth’s Brent raise prices for their consumers or accept that are subject to the tariffs, they may as ‘the end of the experiment, any result besides an “all with information about the high level of Neiman, and the Federal Reserve Bank of thinner profit margins. have to increase prices to shore up profit Friedmanism,’ or nothing” distribution demonstrates inputs provided to one of their children Boston’s Jenny Tang. In fact, Cavallo, Gopinath, Neiman, margins, the researchers speculate. The it’s fully consistent concern about investment equality, the through the program may encourage US consumers may be unscathed by a and Tang find that foreign producers trade war may yet hit the US consumer researchers write. That’s because parents parents to spend more on their other trade war if foreign suppliers reduce the didn’t lower their prices much at all in even harder.—Brian Wallheimer with it.” unconcerned with this should in theory children to mitigate the inequality,” they prices of their goods by the same amount response to the Trump administration’s allocate all the tickets to the child they write.—Rebecca Stropoli Alberto Cavallo, Gita Gopinath, Brent Neiman, and Jenny Tang, —ALEX EDMANS, of London Business School, as the US-imposed tariffs. For example, tariffs. The researchers analyzed Bureau “Tariff Pass-through at the Border and at the Store: Evidence at a Friedman-focused conference hosted in believe will generate the higher returns from US Trade Policy,” American Economic Review: Insights, September by Booth’s George J. Stigler Center James Berry, Rebecca Dizon-Ross, and Maulik Jagnani, “Not Playing Favorites: for the Study of the Economy and the State imagine the US levied a 25 percent tariff of Labor Statistics data on the prices of forthcoming. GARY NEILL BY ILLUSTRATION from tutoring. An Experiment on Parental Fairness Preferences,” Working paper, June 2020.

16 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 17 a new product, a nanotechnology form COULD EASIER stove. A charcoal stove costs of avermectin, an agent that attacks bugs’ between $2 and $5, and the central nervous systems. The nanotech- CREDIT SPEED more-efficient one costs $40 nology delivery made the product more without any subsidies. efficient, requiring smaller quantities. THE ADOPTION Participants had to bid The researchers then divided the on the stove before learning farmers into four groups. Some, in a OF ENERGY the subsidized cost, and they social media–informed group, engaged EFFICIENCY? had an incentive to submit in discussion groups on WeChat, where an honest bid: If their bid was they were encouraged to chat and higher than the subsidized post photos and videos. If participants IN THE FIGHT against cost, they paid the lower cost had questions, other farmers or the climate change, low- and for the new stove. If their researchers could answer them. middle-income countries are bid was lower, however, In about half of the social media crucial, as experts predict they they continued using their groups, farmers collectively chose an in- will drive the growth of global charcoal stove. fluencer, typically a village leader whose energy demand. The new stove slashed a opinions were respected. The researchers But residents there household’s energy costs by instructed the influencers, who weren’t aren’t widely adopting an average $120 a year, the deeply familiar with the product, to post energy-efficient technologies, researchers estimate. That’s a discussion-group messages encouraging and research by Wharton’s 300 percent average annual use of the pesticide. Susanna B. Berkouwer and return rate, or around one Some other participants were Chicago Booth’s Joshua Dean month of income. supported via the telephone rather explores several potential Yet families were only than social media. Farmers in this reasons for this. They find one willing to pay $12 for the group participated in Q&A sessions with to be particularly important: more-efficient stove. Few researchers and in surveys related to access to credit. would lay out the funds even the new product. Because it involved The researchers con- when it was clear that the one-on-one discussions rather than a ducted a field experiment marginal benefit exceeded free, multiuser platform, this strategy was in Nairobi, Kenya, where the marginal cost. However, more expensive. In a final group, farmers much of the low-income when they had access to a received the free samples but neither population prepares loan, participants were willing social media nor telephone support. daily meals over inefficient, to pay $25, more than double The researchers find that the social smoky cookstoves that their original average. media marketing led farmers to adopt the burn charcoal. For the Even though the better new pesticide at far higher rates than just households that participated stove paid for itself, the par- receiving the free samples, and those in in the study, these stoves ticipants couldn’t pay the full groups with an influencer posted even accounted for much of their amount. They simply couldn’t higher rates. energy consumption, and 14 afford it without credit. The social media campaigns gener- percent of the median family The findings demonstrate ated a 30 percent increase in product income went to purchasing the crucial role that credit adoption compared with a control group, charcoal. The population can play, but also the danger In this sense, these farmers are like which translates to a potential 6 percent also pays a large health in exporting energy policies The positive power of social many other types of consumers who go productivity increase and a 20 percent cost. According to the World from high-income countries through several stages before adopting a efficiency-driven drop in overall pesticide Health Organization, close to the rest of the world, says product, Chintagunta says. “First, they use, the researchers estimate. to 4 million deaths a year are Dean. A policy such as a media influencers need to become aware of it. Next, they Results from the study indicate that attributable to household carbon tax may tip the scales must consider it. Then they need to make social media could potentially be used indoor air pollution. for a US resident considering ocial media outlets have become plat- increase yields. However, pesticides a decision to purchase it, then actually to help fight a range of social ills such There is a better option: the switch to cleaner energy. S forms for misinformation campaigns can be deadly, particularly when used purchase it, and finally repurchase it.” as poverty, disease, and pollution. For newer, more-efficient But for a poor resident of and violent rhetoric, which has put improperly. The US Environmental In preliminary interviews with 533 example, Chintagunta says it could be stoves. Because they are Kenya, who already wants to them in the crosshairs of elected officials Protection Agency classifies 68 pesticides rice farmers in China, Chintagunta, crucial to ensuring that everyone who insulated and direct heat make that switch, the scales and regulators worldwide. However, an as potential carcinogens, and in a 2017 Zhang, and Kalwani learned that 74 needs information on communicable-dis- more efficiently, the stoves are already tipped and the experiment by Chicago Booth’s Pradeep report, the United Nations estimated percent of them didn’t know the name ease prevention and management receives consume less fuel and emit issue may be access. In this K. Chintagunta, Cass Business School’s that 200,000 people die each year from of the pesticides they were using, the it, and he thinks that the information less smoke. So why don’t case, subsidies or loans for Wanqing Zhang, and Purdue’s Manohar pesticide poisoning. ingredients, the side effects, or the proper could even lead to improved detection and people switch? high-return, energy-efficient Kalwani involving rice farmers in China Less toxic, more eco-friendly application levels. treatment. The findings Berkouwer and Dean technologies could improve offers a reminder that social media pesticides exist, but some farmers have To see whether online campaigns could “Social media tools can be leveraged demonstrate invited 1,000 low-income environmental outcomes, influencers can play a significant role been slow to adopt them. In emerging improve the situation, the researchers to amplify the first and potentially the danger in families using the traditional save poor households money, in addressing global challenges, such as markets especially, many have uncer- recruited 643 farmers in 34 villages facilitate the second,” Chintagunta says. exporting energy charcoal cookstoves to and benefit public health. dangerous pesticide use. tainties about new products—doubting in Zaoyang County, in China’s central —Rebecca Stropoli policies from participate in their study, and —Martin Daks Many farmers and manufacturers a product’s legitimacy or the credibility Hubei Province, to participate in a field high-income randomly assigned subsidies Pradeep K. Chintagunta, Wanqing Zhang, and Manohar Susanna B. Berkouwer and Joshua Dean, “Credit have long maintained that they need of the supplier, questioning its value, or experiment from June to August 2018. Kalwani, “Social-Media, Influencers, and Adoption of an Eco- countries to the that reduced the purchase and Attention in the Adoption of Profitable Energy Friendly Product: Field Experiment Evidence from Rural China,” Efficient Technologies in Kenya,” Working paper, to use pesticides to protect crops and feeling unsure about how to best use it. They gave all the farmers free samples of CHRIS GASH BY ILLUSTRATION Working paper, September 2020. rest of the world. price of the more-efficient June 2020.

18 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 19 most frequently reported, and the HOW TO PICK A top speeds and what obstacles Banking To identify pre-FIRREA enforcement What related punishment was often financial. they encounter, they may actions, Kleymenova and Tomy relied on Molnar, Chaudhry, and Loewenstein FORECASTING regularly overtake each other. publicly available termination docu- created an online experiment that But how to determine which regulators act ments, and hand-collected a subset of revenge mimicked such a scenario. MODEL car is the better vehicle overall? 1983 and 1984 predisclosure enforcement In one experiment, participants were The typical method is to differently under actions from the US National Archives. told that a coworker had allocated the THERE IS no single, perfect use most of the historical data They then compared these with post-FIRREA seekers are bulk of a task to the study participant economic forecasting available to build the parame- public scrutiny EDOs issued between 1989 and 1997, which even though both would receive the model—one method to always ters for the model and then to are a matter of public record, and find really after same fixed compensation. But the reach for when forecasting use a smaller, more recent set ollowing a wave of savings-and-loan that regulator interventions changed coworker was also eligible for a $1 bonus, GDP or modeling a company’s of data to verify it. Where re- F failures in the 1980s, US lawmakers in some striking ways since the shift in any people who are wronged in and the participant was given the option earnings. A forecasting model searchers choose to draw the enacted a suite of regulatory changes disclosure regimes. Mthe workplace would welcome to reduce that amount (by a little, a that outperforms others in line between the set used for as part of the 1989 Financial Institutions Along with more enforcement actions the chance to exact retribution, moderate amount, or a lot), as well as to good times might prove wildly making estimates and the set Reform, Recovery, and Enforcement Act. taken—for example, a bank in the 75th or would at least think about it. Who send a message that would reveal some inaccurate during a financial used for evaluation is known Among other things, the new law required percentile of nonperforming assets was wouldn’t want to stick it to the sadistic information. Participants could use the crisis or sudden pandemic. as the “splitting point.” They that regulators make their enforcement 1.48 times more likely than a bank in the boss, or the colleague who has taken message to explain why the bonus was Plus new rules, changing rates, try to pick a splitting point decision and order (EDO) documents 25th percentile to receive an EDO before credit for others’ work? cut and even their role in doing so. and stimulus packages can all that leaves enough data in set against banks and other financial institu- FIRREA, but 1.75 times more likely after But just punishing that person might Of nearly 200 participants, 87 change economic conditions. one to build the model and tions public—a move toward transparency it—EDO documents themselves became not be enough, research suggests. percent decided to reduce the alloca- But when do you use one enough in set two to evaluate that has broadly changed the behavior of longer and more complex. The average People contemplating payback want tor’s bonus, and just under half of those model rather than another? it. The choice is relatively ad bank monitors as well as outcomes for number of words increased by 46 percent, the person who wronged them to selected the message that said, “Your It’s difficult to identify and hoc, but it is crucial. banks, find the Federal Reserve Board’s and the postdisclosure documents recognize the misbehavior, and they’ll partner decided to reduce your bonus test for the inflection points The new proposed method Anya Kleymenova and Chicago Booth’s displayed less clarity and more numerical even settle for less severe retribution if because you were unfair to them.” that indicate when it makes avoids the splitting-point Rimmy E. Tomy. intensity and required an additional they know their perpetrator under- A large-scale follow-up experiment sense to switch. University problem and instead examines Comparing regulators’ behavior before 5.5 years of education to comprehend. stands the reasons for it, according to forced nearly 2,000 participants to of Heidelberg postdoctoral each model’s performance FIRREA (when EDOs were generally not Further, Kleymenova and Tomy observe Carnegie Mellon PhD candidate Andras put a value on exacting revenge—if scholar Stefan Richter and against the other’s as a made public) with their behavior after an increased use of boilerplate language Molnar, Chicago Booth’s Shereen they wanted to slash the coworker’s Chicago Booth’s Ekaterina function of time—in effect, the disclosure mandate, Kleymenova in EDO documents after the regime Chaudhry, and Carnegie Mellon’s bonus by 90 percent, they couldn’t also Smetanina put forward a says Smetanina, comparing and Tomy find that regulators tend to change, which suggests the reports are George Loewenstein. explain that they had done so and why. framework for analyzing how the performance of the two take action more often, and earlier, not necessarily more informative. Revenge is obviously a popular When forced to make such a trade-off, forecasting models perform race cars “taking account of now that their decisions are subject to They argue that these changes to the theme in life as well as art—from many participants settled on sending as conditions change. the terrain.” public scrutiny. The researchers argue that content of EDO documents indicate a Shakespeare’s Hamlet, who kills a note that said the bonus had been “Current methodology The result is a more robust reputational concerns are likely drivers of concern among banking regulators for his father’s murderer, to Maximus reduced “because you were unfair to broadly speaking doesn’t allow model-selection process. these changes, and that the impact on the their own reputations, a notion that is Decimus Meridius, the hero of the film your partner,” without revealing that for that,” says Smetanina. Rather than rely on separate banking community has been mixed. corroborated by comparison of EDO Gladiator who similarly kills and dies the partner herself had reduced the “The testing that is done sets of historic data chopped issuance in counties with higher and lower to avenge his murdered family. bonus. In the results, the degree of usually assumes there is into two epochs, Richter and Stricter in the public eye news circulation before and after FIRREA. But what drives revenge, even for punishment was inversely related to one model that always wins. Smetanina have developed a Relative to the predisclosure regime, after far less violent actions? Is a person try- the level of explanatory information But for this to be true, there technique for estimating how FIRREA, regulators were 40 percent more ing to achieve fairness or retribution, delivered to the transgressor. would basically have to be no well models perform under likely to issue enforcement actions in or to make a perceived transgressor “Our results strongly support the changes. Our tests allow for general conditions. 1.48× locations with higher news circulation—the understand that the behavior was idea that punishment decisions are at the possibility that the best Ultimately, the researchers researchers define circulation using the wrong and perhaps feel compelled to least partially motivated by belief-based models will change over time.” created two methods to number of newspapers relative to the never do it again? preferences,” the researchers write. Consider two race compare forecasting perfor- county population in a given year—and The researchers looked at real-life “Specifically, punishers have a strong cars, each representing a mance—one that aggregates Before FIRREA they intervened 31 percent faster. revenge stories posted on Quora, a desire for transgressors to know that forecasting model, that are past performance to measure Worse-performing banks (75th percen- Enforcement disclosure, and regulators’ popular Q&A website. In the nearly they have been punished, and for set loose on a track whose historical performance, tile in terms of nonperforming assets) reactions to it, has had meaningful 100 stories they studied, the best what reason.” length represents the data and another that forecasts were more likely to receive regulatory implications for affected financial institu- predictor of how many views and The findings have implications for available. With an infinitely which model is most likely to enforcement action than better- tions, argue Kleymenova and Tomy. They upvotes a story received was whether the legal system, where the best out- long and perfectly uniform outperform in the future. In performing banks (25th percentile). observe that banks served with an EDO the transgressor learned the reason come for victims may not necessarily race track, the winner will an environment where things during the post-FIRREA period they stud- for his punishment—above and beyond be to severely punish the wrongdoers. eventually become clear are changing, it can help to ied were 36–45 percent more likely to fail, whether he suffered. This suggests “If victims are provided alternative and unambiguous. have these two perspectives, compared with the predisclosure regime, that, at least in the retelling, the ways of communicating messages to But that’s not true in a Smetanina explains. A model 1.75× as public disclosure drove depositors to satisfaction of revenge lies largely in transgressors, through, for instance, time-series forecasting that has performed well in the withdraw their funds. Despite improving sending the transgressor a message. mediation or victim impact statements, context with a limited number past won’t necessarily contin- their capital ratios by 1 percent relative to But the researchers then conducted they may be willing to settle legal suits of data—quarterly GDP figures, ue doing so, and conversely, banks without an EDO, banks receiving controlled experiments to see if they for lower amounts or to ask for lower for example. Here a model’s a model that hasn’t worked After FIRREA an EDO in the disclosure regime failed could establish whether revenge punitive damages,” the researchers performance may change as well before could do well in the Following the mandate to publicly 74 percent faster, or nearly nine months seekers act deliberately to affect the write.—Martin Daks the financial and economic future.—Michael Maiello release enforcement documents, worse- earlier, than banks that received an EDO in beliefs of whomever has wronged context evolves. In this case, performing banks were even more the nondisclosure regime.—Martin Daks Andras Molnar, Shereen Chaudhry, and George Loewenstein, Stefan Richter and Ekaterina Smetanina, them. On Quora, revenge events “‘It’s Not about the Money. It’s about Sending a Message!’: depending on how much room “Forecast Evaluation and Selection in Unstable likely to receive enforcement action. Unpacking the Components of Revenge,” Working paper, Environments,” Working paper, Anya Kleymenova and Rimmy E. Tomy, “Observing Enforcement: in the workplace were some of the May 2020. the cars have to reach their September 2020. Kleymenova and Tomy, 2020 Evidence from Banking,” Working paper, July 2020.

20 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 21 COVID-19

long-term saving habits. The SaverLife OTHER COVID-19 INSIGHTS data provided detailed, high-frequency information including day-to-day inflows, outflows, and balances of anonymized CARES unemployment payments replaced lost individual bank accounts. Using data on more than 6,000 US wages, and then some households for April, the researchers cal- The US government’s Coronavirus Aid, Relief, and Economic Security culated households’ marginal propensity Act temporarily delivered a $600 weekly payment to households that to consume—the proportion of every dollar had suffered job losses. This more than replaced salary for most received that they spent from the moment workers, find University of Chicago Harris School of Public Policy’s they received the CARES payments. Peter Ganong and Chicago Booth’s Pascal Noel and Joseph S. Vavra. “We wanted to understand the Three-quarters of US workers received more from unemployment multiplier effect of CARES payments—how insurance under the CARES provision than they did from wages alone when the government gives you a dollar, when they were working—and the payments proved most helpful for you spend it and effectively give someone people with the lowest incomes, facing the biggest job losses. else a dollar, who then goes on to spend it, giving someone else a dollar, and so on,” Did lockdowns freeze the US economy? Yannelis says. “This is how fiscal stimulus works, so you have to look at people’s Lockdowns slashed incomes and wealth for about half of all Americans, marginal propensity to consume to assess according to University of Texas’s Olivier Coibion, University of California at the multiplier effect.” Berkeley’s Yuriy Gorodnichenko, and Chicago Booth’s Michael Weber. The The researchers find a sharp and imme- researchers conducted customized surveys in January and April, before diate response as payments started hitting and after stay-at-home orders took effect. Employment rates fell by 5 bank accounts. Within the first 10 days, percentage points between the two surveys. In addition, 44 percent of the households spent an average of 29 cents population experienced a decline in earnings and 54 percent experienced a from every dollar received. The bulk of this decrease in savings. This had a domino effect on spending: average monthly spending was on food, rent, and bills, most consumption plunged from $4,000 before the crisis to $3,000 by April. likely in response to the shelter-in-place directives and supply-chain restrictions. The spending couldn’t significantly benefit . . . Or was it chilled by fear instead? the restaurant, services, and hospitality Research from Chicago Booth’s Austan D. Goolsbee and Chad Syverson How effective were those stimulus checks? industries because they were largely shut suggests that commercial activity had already begun to collapse before down to slow the spread of the pandemic. many jurisdictions imposed shutdowns. Plus traffic fell just about as much s the United States was hit with Households started spending the money promptly Moreover, household spending at stores in counties that hadn’t imposed shelter-in-place orders as at COVID-19, Congress passed the $2.2 patterns were driven largely by access to stores in counties in the same metros that had. “Our results suggest that A Within 10 days of receiving CARES payments, US households spent 29 percent of their trillion Coronavirus Aid, Relief, and cash, the researchers find. Families that legal restrictions per se didn’t have a big effect on people’s choices to stay allotment, led by those who had less than $1,000 in the bank beforehand. Economic Security Act in an attempt already had more than $3,000 in the bank at home,” says Syverson. “That means the biggest thing driving the virus to soften the blow from widespread barely touched the CARES payments, while recession is the virus itself, or at least people’s fear of being infected by it.” lockdowns and business closures that led Calculation of the portion of April 2020 stimulus funds that US households households with $10 or less spent almost to soaring joblessness. spent within 10 days of receiving payment half of every CARES dollar within 10 days. The CARES Act—which included Percentage = households’ marginal propensity to consume Since household liquidity determined The reason for a Treasury-bond crisis amid the one-time cash payments of $1,200 or more Households grouped by how much they had in the bank at the start of the month the policy’s effectiveness, the researchers COVID-19 stock market crash to households starting in April—bolstered say that more-targeted payments could incomes and spurred spending as 0% 10% 20% 30% 40% 50% have caused a more powerful multiplier When stock markets plunge, investors usually rush to buy US Treasurys, promised, although the effect was uneven, effect. However, the government doesn’t which have long been the world’s safe-haven asset. But during the COVID-19 suggests research by Northwestern’s Scott have access to information about stock crash, investors sold Treasurys along with stocks. That happened <$10 R. Baker, Columbia’s R. A. Farrokhnia, household liquidity, they note. And because as large institutions scrambled for liquidity, they dumped Treasury University of Southern Denmark’s Steffen while Congress could have narrowed the bonds in favor of shorter-term bills, according to Chicago Booth’s Zhiguo He Meyer, Columbia’s Michaela Pagel, and $10– eligibility parameters—by not making and Stefan Nagel and Johns Hopkins’s Zhaogang Song. Moreover, as they Chicago Booth’s Constantine Yannelis. The $100 payments to households with higher did this, a balance-sheet rule introduced after the 2008–09 financial crisis researchers conducted an almost real-time incomes, while increasing cash to those requiring bond dealers to finance Treasury inventories with a certain amount review of how a significant slice of the $100– at the bottom—that has the potential to of equity capital led the gigantic repo market to seize up. The research serves $1,000 population used the direct payments. distort behavior by discouraging people as a warning that regulation itself can create turmoil, and that the Fed faces The stimulus prompted an immediate, a challenge if it wants to ensure bond-market liquidity in times of stress. $1,000– from saving, Yannelis says. general uptick in household spending, $2,000 “Assuming that policy makers are the researchers find, but households in part using these cash payments as a with cash on hand tended to save their $2,000– means of fiscal stimulus to spur movement See our COVID-19 collection stimulus checks, while those without cash $3,000 in the economy, the findings suggest that on hand spent almost half their checks CARES payments are something of a blunt A flood of research is exploring how the pandemic is changing the within 10 days. $3,000– instrument,” Yannelis says.—Áine Doris economy—and the world. For more on the research above and other The researchers tapped newly $4,000 insights, visit us online at Review.ChicagoBooth.edu/covid-19. Scott R. Baker, R. A. Farrokhnia, Steffen Meyer, Michaela Pagel, and accessible data from SaverLife, a nonprofit Constantine Yannelis, “Income, Liquidity, and the Consumption Response to the 2020 Economic Stimulus Payments,” Working organization that helps families develop Baker et al., 2020 SÉBASTIEN THIBAULT BY ILLUSTRATION Paper, September 2020.

22 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 23 COVID-19

Device Exposure Index Darker = higher Device Exposure Index value A daily measure of people’s A smartphone’s potential daily exposure to other devices: Calculated on the basis of the number of devices that were in the same commercial venues on the same day, this measure reports how many other people the average 0 30 60 90 120 150 800 potential exposure to COVID-19 person could have encountered in one of these places. These maps report exposure on two dates in 2020, recorded in 2,018 of the largest US counties. riven by a virus that can be transmitted by people who don’t realize they have it, the COVID-19 crisis has generated a surge 0 400 800 of interest in people’s movements. While US states such as Washington and New York were hot spots in early 2020, D COUNTY-LEVEL EXPOSURE ON SATURDAY, APRIL 4 infections later spiked in several others, including Florida and Arizona. These regional flare-ups have presented a challenge to governors, county officials, and other local leaders who seek timely insight into how infections might be spreading. After many places announced travel restrictions A team of researchers has generated some tools that could help—indexes that provide daily snapshots of people’s movements Cook County (Chicago), Illinois both within and between about 2,000 of the largest counties by population, across all 50 states. The average smartphone was exposed University of California at Berkeley’s Victor Couture, Chicago Booth’s Jonathan Dingel, Princeton PhD candidate Allison E. King County to as many as 55 other devices Green, University of Pennsylvania’s Jessie Handbury, and Yale’s Kevin R. Williams used anonymized location data from mobile (Seattle), devices to track people’s travels and to calculate measures of people’s exposure to one another by looking at the number of Washington devices that were at the same places, such as stores or restaurants, on a given day. As many as Going back to January 2020, the researchers’ indexes provide a daily look at Americans’ movement patterns amid the 52 other pandemic’s spread. The following maps illustrate a selection of their results.—CBR devices

Location DEVICES IN ILLINOIS ON SATURDAY, APRIL 4 New York After many places announced travel restrictions 3.9% of those devices Exposure Index Clark County had also been in Wisconsin One location’s daily exposure County (Manhattan), over the prior 14 days to smartphones that were (Las Vegas), New York recently in another specific Nevada As many as location: This measure reports As many as 62 other the percentage of smartphones 112 other devices in a state or county on a given devices day that were also in another specified state or county at Miami-Dade some point during the previous County, 14 days—a way of tracking how 0.1% Florida many people were in places had also As many as with higher infection rates, for been in 102 other example. These two maps Nevada devices focus on devices in Illinois on 0.4% SATURDAY, OCTOBER 10 two days in 2020. had also been in Cook County (Chicago), Illinois North The average smartphone was exposed King County Carolina to as many as 159 other devices 0.9% had also (Seattle), Darker = higher Location been in Texas Washington Exposure Index value As many as Share of devices that were in 164 other both Illinois and the indicated SATURDAY, OCTOBER 10 devices state over the 14-day period 6.7% had also been in Wisconsin

0% 0.5% 1% 2% 100% New York Clark County County (Manhattan),

0% 50% 100% (Las Vegas), New York Nevada As many as As many as 199 other Victor Couture, Jonathan Dingel, Allison E. Green, 0.3% 707 other devices Jessie Handbury, and Kevin R. Williams, “Measuring Movement and Social Contact had also devices with Smartphone Data: A Real-Time Application to COVID-19,” Working paper, July 2020. been in Nevada Miami-Dade 0.5% County, Interactive maps online had also Florida See our website to zoom been in As many as in on data for individual North 350 other states and counties. 1% had also Carolina devices been in Texas

24 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 25 COVERSTORY

THE DOWNFALL (AND POSSIBLE SALVATION) OF EXPERTISE

Can experts win back the public’s trust?

BY ROSE JACOBS ILLUSTRATIONS BY JOSUE EVILLA

Winter 2020/21 Chicago Booth Review 27 COVERSTORY

surgery. And the past decade has seen academics Economists and bankers don’t fare as well. The tearing down once-hallowed studies for not meeting Financial Trust Index, a quarterly survey of about statistical standards. 1,000 US households conducted by Chicago Booth But the odds of confronting and overcoming chal- and Northwestern, tracks the trust Americans have lenges such as COVID-19 and climate change without in institutions, including banks, stock markets, and the benefit of and a great deal of trust in professional corporations. The survey was launched in 2008, expertise seem low. When an effective COVID-19 during the 2008–09 financial crisis, and when it vaccine is developed and released, it will need to be debuted, about 20 percent of respondents said they used widely to stop the spread of the disease. trusted these institutions. After a decade of economic All of this makes confronting distrust a pressing recovery, and despite record-low unemployment concern. Fortunately, it’s possible that science, that lasted until the crisis of 2020, the trust index W however mistrusted, may be able to restore some has since climbed to near 35 percent. That’s better

ithin months of COVID-19’s first balance by helping people understand when and why than before, but not exactly impressive—unless emergence in China, the World Health Organization admitted it was to trust experts, and by highlighting the limitations of compared with levels of trust placed in the US federal what we know. government, also tracked by the survey. As of the end battling, alongside the pandemic, something nearly as dangerous Granted, these studies have been conducted by of 2019, trust in the government hovered around 20 experts. But hear them out. percent, registering a slight decrease among people and certainly as complicated: a “massive ‘infodemic,’” in the agency’s in both political parties. A global phenomenon In 2013, Northwestern’s Paola Sapienza and words. Ignorance of the virus had evolved into misinformation, ru- While Fauci is receiving death threats from Chicago Booth’s Luigi Zingales, the researchers Americans who think COVID-19 is a hoax, scientists behind the trust index, analyzed whether Americans mor, conspiracy theory, and political fodder. in general enjoy a high degree of trust among the trust and agree with economists. They posed policy public. A 2018 report by the National Science Board and economics questions to both ordinary Americans Even the best-intentioned medical advice changed regularly. Anthony found nine in 10 Americans agreed that scientists are as well as US economists on Booth’s Economic “helping solve challenging problems,” and a January Experts Panel, run by the Initiative on Global Fauci, the top US medical expert on the pandemic, went, in the course 2019 Pew Research Center survey found that 86 Markets, which periodically surveys several dozen percent of respondents trusted scientists at least “a senior faculty—including Nobel laureates, John Bates of four months, from saying the virus was “not something that the fair amount,” while an even greater number said the Clark medalists, past members of the president’s same about medical scientists in particular. Council of Economic Advisers, and other similarly citizens of the United States right now should be worried about,” and However, there are signs that trust is eroding. recognized economists—at elite research institutions. Research by Edelman, the public-relations firm, re- The average American, whose opinion was gleaned discouraging mask wearing, to strongly promoting masks, shutdowns, ported a slight decline between March and May 2020 from the quarterly Financial Trust Index surveys of in the number of respondents to a series of global representative samples of US citizens, tended to dis- and social distancing—a path traveled by many other public-health surveys who felt scientists, doctors, and national and agree with economic experts, particularly on topics international health officials would “tell you the truth where experts agreed strongly with one another. And officials and agencies too. about the [corona]virus and its progression”—though nonexperts maintained their opinions even when these experts still inspired more trust than did chief they learned what the economists had to say. executives, heads of government, or journalists. Distrust in experts is not exclusive to the US. The seemingly contradictory advice at top levels be eroding more broadly too. Almost a third of Chicago Booth’s Michael Weber tapped into the IGM of government, sometimes twisted or repeated out of Americans either don’t think that global warming European Economic Experts Panel with research context, has left many Americans looking elsewhere is happening or aren’t sure, according to the Yale partners in Italy and Germany, Luigi Guiso of the for guidance. And as the WHO noted, the alternative Program on Climate Change and Communication. Einaudi Institute for Economics and Finance and sources do not always inspire confidence. In an August Growing numbers of parents opt out of vaccination The average American tended to Ifo Institute’s Sebastian Link. They asked nonexpert poll by Politico and market research company Morning programs for their children that have proven not disagree with economic experts, Europeans (as well as central-bank economists Consult, 43 percent of Americans said they would take only safe but wildly effective at eradicating deadly and German executives) in January about topics a COVID-19 vaccine if advised to do so by Fauci or the diseases in the West. particularly on topics where ranging from immigration to competition with Centers for Disease Control and Prevention (CDC). But This may be in part because, as with COVID-19, China, artificial intelligence, and the merits of 46 percent said they would listen to family. Americans, expert opinion changes. Prominent economists experts agreed strongly with raising the retirement age. They then tested whether it would seem, have more faith in armchair experts have admitted they failed to spot the 2007–08 credit one another. And nonexperts respondents’ opinions changed after learning what than the more conventional variety. crunch or underestimated the pain that free trade the experts on the panel thought. But if the vagaries of COVID-19 might explain would impose on manufacturing communities in the maintained their opinions even Though the responses are still being analyzed, this impulse—if it feels like no one knows what’s US. There have been significant reversals in medical when they learned what the Weber notes that he was struck by two early results. going on, and so you might as well trust your loved orthodoxy, from the usefulness of mammograms to First, while expert and lay opinion were more closely ones over strangers—trust in experts appears to the wisdom of hormone-replacement therapy or knee economists had to say. aligned in Europe than in the US, lay/nonexpert

28 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 29 COVERSTORY

Europeans were similarly unlikely to be swayed by ex- Why the distrust? Tepid trust in American institutions at accurately predicting outcomes than narrowly pert opinion. Second, the researchers find a pattern According to Sapienza and Zingales, the lack of focused experts are, even when those predictions of polarization. After being told of consensus among trust—in economists, at least—stems from the Fewer than half of survey respondents expressed trust in US financial are in the professionals’ fields of expertise. He experts, respondents with an interest in public fact that experts and nonexperts often start with institutions, the federal government, or their state government. compared these lay forecasters with the polymath policy or economics were more likely to change their different unspoken assumptions, which leads them to “foxes,” a description by the late philosopher Isaiah opinions to match those of experts, but respondents different conclusions about issues such as the North Financial Trust Index Berlin for people who see the world through a range without those interests, or who had previously American Free Trade Agreement. For example, in the Share of survey respondents who gave institutions of prisms, as opposed to “hedgehogs,” who tend indicated they distrusted academic expertise, moved researchers’ 2013 study, more experts than nonex- one of the top two ratings on a five-step scale: to interpret events through one main framework. in the opposite direction. “This is something you perts considered government to be trustworthy. The For example, Norwegian playwright Henrik Ibsen, imagine in the US, but it’s there in Europe too,” says experts, who trusted government to, say, neutralize Don’t trust at all Trust completely according to Berlin, was a hedgehog—his single Weber, who grew up outside of Heidelberg, Germany, the painful effects of trade agreements, said that organizing principle in his work being the need Banks in a small town whose residents he describes as NAFTA has benefited US citizens. Nonexperts, with 45% for individuals to break free from societal mores— conservative and respectful of expert opinion. less faith in government, didn’t share that conclusion. whereas Shakespeare, a fox, played with a wide Mutual During the COVID-19 pandemic, residents of that Similarly, the experts saw a decade of rising gas array of ideas, experiences, and philosophies that 40% funds town have observed social-distancing rules with no prices as the result of market forces, while nonex- sometimes even contradicted one another. discernible resistance, Weber says. But elsewhere perts saw it as the result of energy policy. Tetlock’s results have been embraced by at least in Germany, protests against lockdowns demon- Why don’t nonspecialists reason their way through 35% Financial one US policy-making institution: the Office of the strated that “there’s a fraction of the population verdicts as dispassionately as experts seem to? And Trust Index Director of National Intelligence, which began a there that is not interested in what scientists say is if they can’t, why don’t they acknowledge their 33.3% in process about 10 years ago of identifying (and then 30% safe,” he laments. knowledge gaps and emotional diversions, and cede December honing the skills of) laypeople “superforecasters” Similar polarization extends beyond Europe, this ground to the experts? Tonia Ries, executive 2019 whose predictions of possible future global events according to Edelman, which for two decades has director of the Edelman arm that runs the Edelman 25% could be weighed alongside those of trained experts. published an annual index probing public trust in Trust Barometer, an annual trust and credibility Pope cautions that some factual questions are still Stock nongovernmental organizations, businesses, govern- survey, says the general public finds experts more best asked of experts. “Don’t go to your neighbors if market ment, and media. The 2020 index numbers show the credible than CEOs, celebrities, government officials, 20% you think you have cancer,” he says, “go to a doctor gap in trust levels between the informed public—col- and regulators—but survey respondents rank another for that.” Large lege-educated high earners who report an interest in category of person as nearly as credible as experts: “a There are, however, certain types of advice, says 15% corporations public policy and business news—and the remaining person like yourself.” Pope, in which predictions must be made despite mass population has increased six percentage points But research by University of California at considerable uncertainty, and these might be enriched since 2012. The credibility of academic experts Berkeley’s Stefano DellaVigna and Chicago Booth’s 10% Components by a wider scope of experience. For example, when follows a similar trend: in 2012, 65 percent of the Devin Pope suggests that laypeople have some reason of Financial students ask him for help finding a thesis or disserta- mass population and 69 percent of informed public to trust themselves in addition to experts; and yet, Trust Index tion topic, he urges them to consult other professors, respondents said academics were very or extremely they are not especially good at recognizing how much 5% too, to make use of the wisdom of crowds; the credible; since then, the proportion has flatlined in faith to put in their own predictions. For example, 2010 2015 2020 averaged predictive powers of experts in his study with the mass population and climbed to 71 percent of the they are bad at estimating how much their own DellaVigna were very good, after all. But Pope suggests informed public. experience and knowledge can or will inform smart Trust in institutions’ COVID-19 response his students also talk to their fellow students: “As long decision-making. April 2020 survey as you keep scaling up the lay expertise, it can be as DellaVigna and Pope asked experts and nonex- effective as or even more so than the experts.” perts to predict the results of an experiment related to incentivizing certain behavior. 47.2% 56.3% Experts for tough choices Laypeople’s forecasts, especially when aggre- Trust 30% There are more reasons to trust experts than gated together, were often as good as those of the just their odds of getting it right—time saving, for experts in the study. The average forecast among example. Karina de Kruiff, a Chicago native who Laypeople have some 208 professors was highly accurate and better than moved to Munich in 2013, is not sure she agrees the average forecasts by nonexperts (graduate US State Centers for Disease with all the guidelines the government has issued reason to trust themselves students, undergraduates, and participants on the government government Control and Prevention about COVID-19, but she has largely followed them, crowdsourcing website Amazon Mechanical Turk, returning to work as a kindergarten teacher in late in addition to experts; who were meant to represent laypeople). Yet by April despite some nervousness about the number of 15.9% and yet, they are not grouping together the forecasts of lay predictors, the 23.7% children she would be caring for, and heading to the researchers find that they were as good as those of Don’t 37.7% Alps with her women’s hiking group in May despite especially good at knowing the best individual experts. trust it feeling “like we were doing something wrong the how much faith to put in These findings chime with work by University of whole time.” Whereas she sees friends in the US ques- Pennsylvania’s Philip Tetlock, whose research over tioning everything, “here, people do their research their own predictions. 30 years has suggested certain amateurs are better Sapienza and Zingales, 2009; Benmelech et al., 2020; financialtrustindex.org but they also say, ‘OK, if it’s allowed, I’ll do it.’”

30 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 31 COVERSTORY

IN GUILTIER PEOPLE WE TRUST “Participants return significantly greater proportions of money to others who have taken substantial risks A lot of research over the past 50 years has explored when trusting them than to those who have not made when and why one person will trust another, but far fewer themselves vulnerable to the risks of trusting,” the studies have focused on whether trust, once given, is researchers write, adding that “highly guilt-prone well placed. Never mind whether people appear to be individuals are not simply more generous; rather, they are trustworthy—what makes people deserving of that trust? sensitive to social expectations.” Research by Samantha Kassirer at Northwestern The researchers find that participants most Research by Chicago Booth’s Emma Levine, Hong This sensitivity can also be manipulated with contex- and Chicago Booth’s Emma Levine and Celia Gaertig conflicted by the choice responded most positively Kong University of Science and Technology’s T. Bradford tual information. When the researchers introduced into suggests this latter approach—to trust experts with to experts who provided their personal recommen- Bitterly, Carnegie Mellon’s Taya R. Cohen, and University one of their studies a code of conduct that promoted tough choices—emerges most often in situations that dations. Moreover, if the advice turned out to lead to of Pennsylvania’s Maurice E. Schweitzer finds that the personal responsibility, participants—guilt prone or have a high degree of uncertainty. In a recent study, unhappy results (such as losing money), they didn’t best indicator of trustworthiness is a person’s propensity otherwise—became more trustworthy. the researchers investigated how participants reacted blame the experts. “It seems surprising at first, but to feel guilt—or, more particularly, the degree to which she There is a clear lesson for anyone attempting to to different types of medical advice. Some advice was less so when you think about the counterfactual,” anticipates feeling guilty about potential transgressions. suss out trustworthiness—perhaps when evaluating a “paternalistic,” in which hypothetical doctors recom- says Levine. “You might feel angry at your doctor for Economists, psychologists, and sociologists have es- potential business partner, love interest, or friend. “When mended a specific course of action on the basis of their giving you advice that led to a bad outcome. But you tablished that people often decide to trust someone on the deciding in whom to place trust,” write the researchers, personal opinion, while other advice was more focused might feel angrier if you felt he sat back and let you basis of the person’s sex, nationality, or social status. It can “trust the guilt-prone.”—Rose Jacobs on patient autonomy, and the doctors resisted suggest- make a mistake.” also depend on the impression the person makes. People Emma E. Levine, T. Bradford Bitterly, Taya R. Cohen, and Maurice E. Schweitzer, “Who Is ing a path. The participants preferred the paternalistic For Levine, the research resonated with her own seen as competent or kind are more likely to be trusted, and Trustworthy? Predicting Trustworthy Intentions and Behavior,” Journal of Personality and Social Psychology, September 2018. option, getting a doctor’s subjective recommendation, experience with a complicated pregnancy, when offering apologies also helps. On the other hand, individuals even if an objectively correct choice did not exist. medical norms made trying to get clear recommen- who seem to be concealing information or have broken The questions probing medical advice were hypo- dations from a doctor “like pulling teeth.” She sees promises dent their chances of winning anyone over. thetical, but Kassirer, Levine, and Gaertig find similar Americans having some of the same experiences in To find out what makes people genuinely trustworthy, Guilt and trustworthiness patterns in a real-world experiment where subjects the back-and-forth over how to loosen lockdowns the researchers conducted a series of lab experiments in After participants answered questions assessing their could win money, or lose it. They offered participants without endangering public health during the which participants had to decide whether to share money tendency to feel guilty about private transgressions, they the chance to take part in one of two raffles, and gave COVID-19 crisis. They know that the experts can’t or other rewards with partners who had trusted them to played a trust game in which they decided whether they them information about the possible outcomes asso- give definite dates for when certain activities will do so. would split a small bounty of lottery tickets with someone ciated with each raffle to help them decide which best be safe again—and they might not blame them for In one test, participants in the top quartile of guilt who had just shared with them. The researchers find that fit their risk appetite. Raffle “experts,” with access to that. But they nonetheless suffer if no guidelines are proneness were 1.6 times more likely than those in the more-guilt-prone participants were more likely to share. data about past raffles, also weighed in—some with offered at all. lowest quartile to do what they had been trusted to more paternalistic recommendations about what to do. In another study, in which students had to decide Share of study participants who demonstrated do, and some who offered further information but no The politicization of expertise whether to share a pack of lottery tickets with someone trustworthy behavior explicit recommendation. If we cast epidemiologists and clinicians as hedge- who had trusted them to do so, participants who rated Grouped into quartiles by level of guilt proneness hogs, who make calls mainly on the basis of their themselves high in the propensity for guilt were 1.4 times In medical matters, we defer to the experts evolving understanding of the coronavirus and more likely to share the tickets than those with average LEAST COVID-19, who are the foxes that people can turn guilt propensity. GUILT PRONE In a study of people’s judgment of medical experts, participants rated to for longer-term guidance? Whom can people A person’s tendency to feel guilty turns out to be doctors who provided two different styles of advice: trust to pursue a reopening of the economy while a better predictor of trustworthy behavior than any also keeping in mind virology and biology, people’s of what psychologists call the Big Five personality 35% Paternalistic advice, recommending Advice that prioritized social and financial needs, and civil rights? The traits: agreeableness, extroversion, conscientiousness, a specific course of action even when autonomy, leaving the answer quickly turns political: in the US, some openness, and neuroticism. there was no objectively correct answer decision to the patient conservatives argue that Democrats have ceded too The researchers argue that this is because guilt is much power to narrowly focused bureaucrats; many strongly and specifically tied to a sense of interpersonal Ratings of doctors’ helpfulness on the left see US president Donald Trump as a fox responsibility that tends to drive trustworthiness. They manqué, pretending to synthesize science he does demonstrate this in a study in which they manipulated not understand. how vulnerable partners in a trust game made them- Percentage of each quartile These dueling political perspectives have conse- selves to participants. In the study, partners received $20 who shared the tickets quences. A team of researchers—Columbia’s Andrey and had to decide how much of it to pass to participants, Doctors’ competence Simonov, Columbia PhD candidate Szymon Sacher, who then decided how much of the amount (which was Chicago Booth’s Jean-Pierre Dubé, and University of tripled) to share in return. Washington’s Shirsho Biswas (a recent graduate of When partners passed the entire $20, they made them- Booth’s PhD Program)—looked at Nielsen television selves very vulnerable and demonstrated a lot of trust viewing numbers to test for and measure a causal that participants would share the wealth. This influenced 54.2% Likelihood of returning to and recommending the doctors effect of Fox News on compliance with state and local the behavior of guilt-prone people, leading participants stay-at-home orders between March and July. They who were high in guilt proneness to feel responsible for measured social distancing using location data from their partner and therefore act in a trustworthy manner. MOST millions of cell phones. To identify the causal effects, On the other hand, when partners did not make them- GUILT PRONE they exploited the random assignment of channel selves particularly vulnerable, guilt proneness had no 1234567positions across US cable markets. Viewers in general influence on trustworthy behavior. Levine et al., 2018 LOWEST Rating scale HIGHEST are more likely to watch a channel that is high on the Kassirer et al., 2020 dial (such as 1, 2, or 3) rather than lower (101, 102,

32 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 33 COVERSTORY

Weber’s work in Europe suggests that leaning Recognizing knowledge and remaining humble right politically has a relationship with skepticism Science, however, evolves—as does expert opinion, toward experts, albeit a weak one. Other factors which it informs. The CDC updated its guidance such as intellectual interests, risk appetite, and trust about COVID-19 as health professionals gained more in people generally are much stronger predictors. information and evidence. But it takes time for such And while their political views may be evidence to accumulate, and then for early research responsible for people’s skepticism toward findings to be reviewed, tested, and ultimately experts, research suggests people are capable of accepted as bankable knowledge—or rejected and trusting politicians who disregard experts without replaced by other hypotheses. Thus, it’s not neces- necessarily disregarding those experts them- sarily antiscience to be skeptical of new information, selves. Booth’s Levine finds in a series of studies argues one economics expert—just a recognition of on prosocial lying, including with University the scientific process. of Pennsylvania’s Maurice E. Schweitzer, that Booth’s Kevin M. Murphy says it’s important people can trust someone while at the same time to distinguish between short-term news and believing that person is a liar. “There are different long-term, established knowledge. The former is kinds of trust,” Levine says. “We can trust in the “flow” of knowledge, which can be provoca- someone’s benevolence and goodwill while tive but may soon enough be proven incorrect. believing they are lying to us. Many people who This includes new ideas that may never have support Trump might not believe what he’s saying solid support, even if they come from people while still believing he is fighting for them.” positioned as experts. The latter is the “stock” of Personal experience, moreover, can move knowledge that is valuable and has taken years people toward taking expert advice. In a study set to establish. in the US, University of Texas’s Olivier Coibion, “Our best answers are likely to come when we University of California at Berkeley’s Yuriy can apply proven ideas and principles to new Gorodnichenko, and Weber used the staggered problems. Things often seem ‘unprecedented’ introduction of coronavirus lockdowns to exam- when we look at them in terms of the details but ine their impact on consumers’ spending habits, much less so when you think harder,” he says. economic expectations, and trust in institutions. “To me, the key in applying economics is to see They find that, even controlling for how people the commonality with problems you have studied or 103). Using only the incremental viewership the governor’s political party or the state voting voted in the 2016 election, being under lockdown before.” What can we learn from past problems, induced by a local channel position in an individual patterns for the 2016 presidential elections. increased a person’s esteem for the CDC. “I’d and existing ideas? What does that say about the zip code, the researchers find that watching Fox Institutions of higher education aren’t immune guess people were really scared of the situation, current situation, including the limitations of News caused people to social distance less. An to party politics. Data collected this spring by the and looking for guidance and leadership,” says new ideas? Murphy sees new theories as a last additional 30 minutes of Fox News per week Chronicle of Higher Education reveal that whereas Weber. “They found it in the CDC.” resort, and at convocations he has counseled new caused between 5 and 28 percent of the persuad- just 45 percent of colleges and universities in states graduates to think “inside the box”—not just out able audience not to comply with social distancing. won by Hillary Clinton in 2016 were planning of it, although that may be fashionable. “Fox News has a very large persuasive effect,” in-person classes for fall 2020, the portion climbed Of course, when time is of the essence—such as says Dubé. What if all the experts got their advice to 80 percent in states won by Trump. in the midst of a global pandemic, when scientific wrong, and social distancing was shown to be Researchers at Davidson College in North understanding changes quickly—there may be useless? Even in that unlikely event, he says, it’s Carolina, led by Christopher Marsicano, demon- value in new data and ideas. But that is when it is still striking that people would have ignored expert strate a similar trend in colleges’ transition to particularly important to depend on established advice coming from the World Health Organization, online teaching in March, as the scale of the knowledge, he maintains. A theory created to the CDC, and medical-school faculty in favor of pandemic was becoming clear. Colleges in states Science evolves—as does address the current challenge may be enticing but what Fox News anchors were saying. led by Republican governors were slower to stop expert opinion, which also shaky when time is most precious. “I want to know if this is good or bad for society,” in-person classes than those in Democrat-led states, “Given all of this, I think it is important to be he says. “The harm it creates for society is Fox independent of campus infrastructure, class size, it informs. Thus, it’s not humble up front,” he says. “We need to be clear News causes people to distrust experts.” (For or ratio of students living on campus. Neither that we are still learning about the situation more, read “Fox News causes viewers to disregard analysis of colleges controlled for coronavirus necessarily antiscience to be and that our ideas may change. To maintain social distancing,” published online at Review. cases, though the Davidson team points out that de- skeptical of new information, confidence, we should avoid the most speculative ChicagoBooth.edu.) cisions to go online usually preceded a confirmed predictions and earn people’s confidence through Seth Masket, a political scientist at the University case of COVID-19 at the school. “While the threat of argues one economics honesty and making clear the limits of our exper- of Denver, meanwhile notes that COVID-19 deaths the virus is very real, imminent threats of members expert—just a recognition of tise. We know some things but not everything. We and coronavirus case numbers tend to be less of campus communities contracting the virus likely often forget that policy decisions must consider predictive of when a state opens up than are either did not end in-person instruction,” they write. the scientific process. more than our expertise. Most importantly, we

34 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 35 COVERSTORY

WHY UNCERTAIN ADVICE MIGHT BE probability, such as: “There is a 57 percent chance that the Chicago Cubs will win this game”; nonnumerical state- BETTER THAN OVERCONFIDENCE ments of uncertainty, as in: “The Chicago Cubs are more likely to win this game”; and a range of outcomes, such as: “The Bucks and the Cavaliers will score between 197 and Conventional wisdom holds that people prefer advisors 217 points.” who offer certainty. For example, in his best-selling The participants then rated the quality of the advice, book Thinking, Fast and Slow, Princeton’s Daniel indicating how persuasive it was, and how knowledgeable, should view what we provide as input not as an- can be harmful when decision makers embrace a Kahneman writes, “An unbiased appreciation of competent, credible, and trustworthy they perceived the swers. We often say that people who disagree with specific model that delivers the findings that they uncertainty is a cornerstone of rationality—but it is not advisor to be. us ‘are not listening,’ but they may be listening and prefer to see,” writes Hansen, expressing hope that what people and organizations want.” In line with prior work, Gaertig and Simmons find that just disagree.” Experts make mistakes, and to say we can stop pushing model uncertainties into the But research by Chicago Booth’s Celia Gaertig participants evaluated confident advisors more posi- or imply otherwise undermines their credibility. background of policy making. Hansen sees potential and University of Pennsylvania’s Joseph P. Simmons tively than advisors who lacked confidence. Importantly, University of Chicago’s and Booth’s Lars Peter promise in efforts to integrate economics and epi- suggests otherwise, finding that while people judge however, they did not find that participants evaluated Hansen, a Nobel laureate, explains in a Chicago demiology when building models aimed at guiding confident advisors favorably, they don’t mind when uncertain advice more negatively than certain advice. In Booth Review essay how to make sense of new efforts to confront health and economic trade-offs advice itself is uncertain. “Our results challenge the fact, participants either rated uncertain and certain advice information as it comes in. Data, he writes, though in future pandemics. But there are knowledge limits belief that advisors need to provide false certainty for the same or they rated uncertain advice more positively vital to scientific understanding, are also frequently in both fields that should be recognized when using their advice to be heeded,” the researchers write. than certain advice. open to interpretation. “While we want to embrace such “integrated assessment models,” he says. (For Gaertig and Simmons conducted a series of studies Statements of probability, nonnumerical statements of evidence, the evidence seldom speaks for itself; more, read “How quantitative models can help both on Amazon Mechanical Turk and in the laborato- uncertainty, and imprecise advice in the form of a range typically, it requires a modeling or conceptual policy makers respond to COVID-19,” Spring 2020 ry. In some of the studies, participants predicted the of outcomes all yielded similar results. The one exception framework for interpretation. Put another way, and online.) outcomes of upcoming sports games on the day they was that participants didn’t like when confident-appearing economists—and everyone else—need two things to The gap between epidemiologists and economists, were played. Participants received advice on the basis advisors qualified their advice with a “probably.” draw a conclusion: data, and some way of making as between nonexperts and experts, can be wide—but of data from betting markets to help them make In further experiments, these results held when partici- sense of the data.” He and others seek to model much is to be gained by bridging it. Experts in any their predictions. pants were asked to directly choose between advisors. how to “incorporate, meaningfully acknowledge, field can make mistakes by failing to recognize the While the advice was always good, the researchers Most participants were inclined to choose advisors who and capture the limits to our understanding,” and reality in which others live, which affects how their manipulated the confidence of the advisors who deliv- included uncertainty in their advice over those who to understand the implications of these limits. (For advice will land. ered it by having some of them preface it with “I am not provided certain advice. more, read “Purely evidence-based policy doesn’t Sapienza and Zingales conclude their paper on the sure”—for example, “I am not sure, but I think that the “Advisors benefit from expressing themselves with exist,” Spring 2019 and online.) divergent opinions of experts and nonexperts not by Chicago Cubs will win the game.” Other advisors simply confidence, but not from communicating false certainty,” It can be extremely valuable, he writes in a wagging fingers at ordinary Americans for not getting said, “The Chicago Cubs will win the game.” the researchers conclude.—Jill Priluck different essay, for decision makers to be confronted on board with expert opinion, but by urging experts The researchers also manipulated the certainty of with existing scientific evidence from multiple to take off their professional blinders. “The context Celia Gaertig and Joseph P. Simmons, “Do People Inherently Dislike Uncertain Advice?” the advice itself. To do this, they used statements of Psychological Science, February 2018. disciplines, at the same time respecting the limits in which these [expert opinion poll] questions are of this knowledge, in order to make informed asked induce economists to answer them in a literal Uncertain advice wins consistently decisions in the moment. In many settings, there is sense,” they write. “Hopefully, the same economists, no single, agreed-upon model but rather a collection when they do policy advice, would answer the same After receiving advice on how to predict baseball-game outcomes from two advisors, study participants were more of alternative models with differing quantitative questions very differently.” likely to say they preferred the second advisor when that advisor provided uncertain advice—for example, a percentage predictions. Take epidemiological models enriched Similarly, policy makers and the media can try probability that one team would win. to confront both health and economic consider- hard to ask their questions from new angles, and ations, for example, especially those used to inform with context in mind, much like the New York Times Share of study participants who preferred the second of two advisors policies such as lockdowns. “I worry when policy did in May in asking epidemiologists not when they when that advisor had given: makers seemingly embrace one such model without think it will be safe to send children to school or step a full appreciation of its underlying limitations. It on an airplane—questions that alone might yield lots of “when there is a vaccine” responses. Instead, the Major League newspaper asked epidemiologists when they plan to Baseball games do these things themselves, forcing them to consider a wider range of factors than those contained in their The gap between epidemiologists area of expertise. Reds vs. Pirates 80.6% 22.8% Still, as policy makers look not just to virologists, and economists, as between but economists, sociologists, historians, and others nonexperts and experts, can be for guidance on how to cope with this pandemic and Rangers vs. Astros 85.4% 11.9% its fallout, responses couched in caution and hedged wide—but much is to be gained by for public consumption may feel inadequate. Here, Penn’s Tetlock offers some succor. His team’s efforts Angels vs. Mariners 82.2% 15.7% bridging it. Experts in any field to identify superforecasters uncovered several factors can make mistakes by failing to that boost performance, and one was public scrutiny. Which is to say, today’s skeptical citizens, if truly Cubs vs. Athletics 81.2% 14.6% recognize the reality in which paying attention, may be improving the very advice they are scrutinizing.—CBR Gaertig and Simmons, 2018 others live, which affects how Go to Review.ChicagoBooth.edu to see citations for research mentioned in their advice will land. this article.

36 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 37 Would you trust a machine to pick a vaccine?

Machine learning is being tasked with an increasing number of important decisions.

But the answers it generates involve a degree of uncertainty.

BY EMILY LAMBERT ILLUSTRATIONS BY GREGORY REID

38 Chicago Booth Review Winter 2020/21 The implications are increasingly important ML can find patterns in satellite images, restaurant as people assign ML more and more-varied reviews, earnings calls, and more. It “can deal with Back before COVID-19, tasks. Researchers are seeking to understand the unconventional data that is too high-dimensional calculations better as they advance the field and for standard estimation methods, including image find the limits of what machine learning can and and language information that we conventionally can’t—indeed shouldn’t—do. “Machine learning had not even thought of as data we can work with, Chicago Booth’s Sanjog Misra was on vacation in Italy with his son, who can’t be applied simplemindedly,” says Booth’s let alone include in a regression,” write Booth’s Tetsuya Kaji, an econometrician and statistician. Sendhil Mullainathan and Stanford’s Jann Spiess, has a severe nut allergy. They were at a restaurant and couldn’t read whose research points to many interesting prediction Finding patterns, making predictions problems in economics for which ML is useful. the menu, so Misra opened an app that translates Italian to English, ML is in some sense just statistics with a different “Machine learning provides a powerful tool to hear, name—but many people see it as a distinct branch more clearly than ever, what the data have to say.” and pointed his phone at the menu to find out if one of the dishes was that grew out of an effort to realize artificial intel- Booth’s Dacheng Xiu uses ML to predict ligence, the study of getting computers to do tasks financial-market movements, by mining market peanut free. The app said it was. that humans have traditionally performed. While data alongside other sources including text from the human brain is special and can make sense of news reports. Harvard’s Zheng Tracy Ke, Xiu, and But as he prepared to order, Misra had a thought: Since the app the world in ways computers cannot—at least not Yale’s Bryan T. Kelly wrote a model that essentially yet—computers can still do a lot, including reason. automatically generates a dictionary of relevant was powered by machine learning, how much could he trust its And with ML, machines can learn from examples words frequently associated with positive or neg- instead of specific human instructions. ative returns. They analyzed more than 22 million response? The app didn’t indicate if the conclusion was 99 percent Powered by models borrowed from the field articles published from 1989 to 2017 by Dow Jones of statistics, ML can analyze data, use them to Newswires, screening for the words; then isolated certain to be correct, or 80 percent certain, or just 51 percent. If the app make predictions, and from there, learn to make and weighted terms most likely to predict a stock’s even better ones. Thus, people use it to translate future price; and finally gave articles sentiment was wrong, the consequences could be dire for his son. information, classify photos, and execute other scores. (For more, read our Winter 2019/20 article complex tasks. “Text-reading machines can predict share prices,” Statistics is, at its core, a scientific way of online at Review.ChicagoBooth.edu.) making decisions using data. What’s the probabili- ty that something is likely to happen? You want to What else data patterns can reveal Machine learning is increasingly ubiquitous. to test thousands upon thousands of hypotheses know this when deciding whether to, say, invest Some prediction problems are harder than others, It’s inside your Amazon Alexa. It directs self-driving about what might stop the virus. “The beauty of money, step into a self-driving car, or be adminis- however—and this is where uncertainty can creep in. cars. It makes medical decisions and diagnoses. ML is it can detect patterns, figure out connections tered a new vaccine. Say a portfolio manager at a small hedge fund wants In the past few years, machine-learning methods on its own that you didn’t tell it to look for,” says An ML algorithm helps by finding patterns in to know whether the S&P 500 will go up tomorrow. have come to dominate data analysis in academia Haydon. “It can be a very useful tool to get over data. Many times, an algorithm receives example ML predicts this by looking for factors that matter, and industry. Some teachers are using ML to read your own biases.” inputs and desired outputs, then learns to map identifying patterns in data. Algorithms are trained students’ assignments and grade homework. There ML allows researchers to work with large amounts inputs to outputs. Other times, the algorithm using vast quantities of data and can learn to is evidence that machine learning outperforms der- of complex data and use these data to tackle new doesn’t receive data that are labeled, but has to anticipate market movements. But it’s one thing to matologists at diagnosing skin cancer. Researchers questions. But like any tool, it can be used wisely find its own structure. answer this question when only the small fund is have used ML to mine research papers for infor- or badly, and it’s imperfect in a particular way. The planning to change its usual trading pattern. If a big mation that could help speed the development of a answers that ML generates all involve some degree of fund makes a trade or changes its behavior in a way COVID-19 vaccine. uncertainty, which affects (or should affect) how con- that has the potential to move the market, this will They’re also using ML to predict the shapes of fident people can be in the results. You might trust an complicate the picture and any predictions about proteins, an important factor in drug development. ML algorithm to predict the weather, recognizing that Statistics is, at its core, a market direction. “All of our work begins in a computer, where we run in most cases an inaccurate prediction wouldn’t be a scientific way of making Besides prediction, ML can tackle questions hundreds of millions of simulations. That’s where tragedy. But would you trust a different ML algorithm having to do with inference. Think of a typical machine learning helps us find things quickly,” says to drive you to the airport or to fly a plane? You might decisions using data. What’s housing market, says Booth’s Max Farrell. If there’s Ian Haydon, the scientific communications manager trust your doctor if she recommends a vaccine, and a house you’re interested in buying, how should for the Institute for Protein Design at the University at this point, any vaccine or COVID-19-related drug the probability that something you come up with a reasonable price to offer? A of Washington. Some scientists there are developing would need to go through testing and clinical trials. is likely to happen? You real-estate agent often comes up with a number, a vaccines, and others are trying to develop a drug But would you trust a vaccine if it were, one day, prediction, but an ML algorithm can do that too, by compound that would stop the novel coronavirus recommended by an ML algorithm rather than having want to know this when finding patterns in real-estate data. If the house you from replicating. This involves finding proteins been subjected to long trials? Would you want to like is bigger than average, it’s probably also more that, due to their shape, can bind to a coronavirus know more about the probabilities involved, or get a deciding whether to, say, be expensive—your realtor may say that a rule of thumb molecule and shut it down. Technology can be used confidence interval of some kind? administered a new vaccine. to follow in your area is that for every 1,000 square

40 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 41 feet in a house, the price goes up $200,000. But Identifying causal effects how sure are you about that correlation? That’s a But establishing a correlation is, famously, not CAN AUTOMATED ART Rembrandt by the critic ML. As the forger question of inference, and ML can address it. the same as pinning down a causal relationship. ML learns, it starts to create paintings that Some researchers do this by creating param- Think again about house prices. Imagine that your FORGERS BECOME increasingly look authentic and confuse the eters, essentially establishing the lines of a box real-estate agent’s rule of thumb is valid: that in your critic ML. within which the answer is likely to be. Booth’s area, for every 1,000 square feet in a house, the price ECONOMISTS? A mathematical version of this is Panos Toulis has been working with astrophysicists goes up $200,000. If you add a 1,000 sq. ft. addition the method that the researchers apply to detect exoplanets, which orbit stars outside of to a house, will that push up the price by $200,000? Some in the United States have proposed to complicated questions, says Kaji. In our solar system. A planet orbiting a star can be Even if it does, did the extra square footage push raising the retirement age in order to spend their method, a “generator” creates fake detected as a slight oscillation in data collected up the house price in itself, or was it the additional less on Medicare and Social Security. But it’s economic data using a model backed by through spectrographs attached to telescopes, but bathrooms and bedrooms? Causal inference is about not simple to predict whether such a policy economic theory, and a “discriminator” is any given oscillation a sign of an exoplanet, or that leap, moving from a pattern you know is there to change would save as much as expected, classifies whether the data are genuine. just noise? If researchers incorrectly infer there one that’s more causally related. in part because it depends on how the The competing algorithms, in a method the is a planet, NASA might waste billions of dollars The gold standard in causal questions is a con- elderly will react. Predicting this requires also researchers call an adversarial estimation, designing and building equipment to study it. It trolled study. To investigate what a drug does in the knowing why older people save their money establish the parameters needed to make would be helpful to know the level of uncertainty body, medical researchers conduct trials, assigning a instead of spending it in their old age, a realistic, more-accurate predictions in involved before committing substantial funds. drug to some randomly selected patients while giving behavior that has been observed and noted situations where behavior changes can Toulis proposes a method to ascertain this others a placebo. in research. affect outcomes. by eliminating unnecessary assumptions. He But real life can be messier, and such controlled Untangling this if-then exercise quickly The researchers applied their method to doesn’t like speculating: “If your data don’t have trials aren’t always possible. Policy issues are an gets complicated, but Chicago Booth’s the question of why the elderly spend mon- enough power to speak, they shouldn’t speak,” example: consider the US programs of Medicare and Tetsuya Kaji, NYU’s Elena Manresa, and ey at a puzzlingly slow rate. One algorithm he says. His method is, very broadly, almost like Social Security. Some officials have proposed further University of Chicago Harris School of looked for features in economic statistics tuning an instrument or finding a station on a raising the retirement age (scheduled to increase to Public Policy’s Guillaume Pouliot have that distinguish the observed behavior of radio—you look for the limits of a few variables 67 by 2022) to avoid future deficits. Could ML predict devised a machine-learning method to help. the actual elderly, while the other looked for beyond which the data look implausible. This the effects with a high degree of certainty? And if ML could better explain behavior, an economic model that reproduces such approach is more computationally intensive To approach such questions, says Booth’s Kaji, such as what drives people to preserve statistics to trick its opponent. but generally requires fewer assumptions than we need to be able to predict how the elderly money in their old age, policy makers could The economic model that this cat-and- typical approaches. will change their behavior under the new policy, make more-informed decisions. mouse game generated aligns the complicated He applied the same method to the question of which is a causal question. Many studies have To understand how their ML model works, incentive structure in a way that mimics the prevalence of COVID-19 in the population. (See documented that retired people decumulate their says Kaji, consider the art world. “What do the elderly’s actual behavior, which makes “What percentage of the population has contract- wealth at a puzzlingly low rate. Is that because you think it means to have an authentic it possible to try out different policies in a ed COVID-19?” Fall 2020 and online.) Looking at they want to leave money to heirs? Or are they painting?” he asks. Say you have a work that simulated world and see what happens. The studies conducted in Santa Clara, California, and uncertain about how long they’ll live, so are trying looks like it was painted by Leonardo da researchers used their model to assess several New York, he applied his method to test whether not to be caught with less money than they need? Vinci, and most critics say it’s authentic. Is it? possible explanations, including that older the data were consistent with any possible Or are they concerned about the rising cost of In the world of art, authenticity is defined on people don’t know how long they’ll live, want hypothesis of unknown disease prevalence. Doing medical expenses? The actual reason would be a the basis of what the majority of critics agree, to leave money to heirs, or are concerned with this, he demonstrated that the traditional methods combination of many factors, including these, but so successful forgers have to trick the critics. In rising medical costs. are usually “overconfident,” as they focus on without knowing it, it’s impossible to effectively the 20th century, a Dutch painter named Han The ML-inspired method doesn’t require what is most probable, and ignore less-probable predict what the new policy would bring about. van Meegeren forged paintings by a number of selecting and using features that might best possibilities, which sometimes are also consistent Kaji and his coresearchers, NYU’s Elena Manresa famous artists, including Vermeer. After World represent the elderly’s behavior. Instead, with the available data. and University of Chicago Harris School of Public War II, when he was accused of having sold the method adaptively learns from data Policy’s Guillaume Pouliot, have applied a meth- Dutch property to the Nazis, van Meegeren and figures out for itself an optimal set of od, called an adversarial estimation, to infer the confessed and was found guilty of the lesser features. And the researchers find the mod- parameters of the economic model that describes charges of forgery and fraud. el’s explanation for why older people spend When computers can search for the elderly’s behavior. The researchers’ ML method, explains slowly—that they, even if not rich, want to The method is inspired by the recent development Kaji, is similar to the cat-and-mouse game leave money to their heirs—to be reasonable a way to generate realistic data in ML that gave computers the ability to generate played by critics and forgers. Say a “critic” and plausible. They say their method opens realistic images that they have not seen before, ML algorithm is trained to identify paintings up new possibilities to address deeper and as complicated as images, they he says. When computers can search for a way to by Rembrandt, much like an autonomous more sophisticated policy questions than can also be used to search for an generate realistic data as complicated as images, car is trained to identify pedestrians. But was previously feasible. they can also be used to search for an economic a “forger” ML algorithm tries to generate economic model that generates model that generates realistic data as complicated Tetsuya Kaji, Elena Manresa, and Guillaume Pouliot, “An Adversarial paintings that can be misidentified as a real Approach to Structural Estimation,” Working paper, July 2020. realistic data as complicated as as the elderly’s saving decisions. (For more on how the method works, see “Can automated art forgers the elderly’s saving decisions. become economists?” on the facing page.)

42 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 43 Acknowledging the uncertainty We often base our decisions on predictions of future In all of this, the potential inaccuracy of ML is outcomes that never come with absolute certainty. If crucial. Booth’s Misra kept that in mind when ML is a black box that outputs a number, that number he used it to translate the menu, and it was up is one in a range of values within which the truth is to him to decide whether to override the app’s most likely contained. To improve machine-assisted conclusions. But if an ML algorithm is tasked decision-making in real life, statisticians are trying, with driving a car and screws up, it can cause an with theory and data, to quantify the uncertainty of ML accident. If it mispredicts the effects of a policy predictions. They measure uncertainty with probability change, people could be financially stressed, or in much the same way we measure temperature with the policy could backfire in some other way. If a thermometer, Booth’s Veronika Ročková explains. ML misidentifies the structure of a protein in the How this is done depends on the type of ML method search for a treatment for COVID-19, lives could involved, of which there are a variety, including be lost. decision trees, random forests, deep neural networks, There are two primary ways ML can make Bayesian additive regression trees (BART), and the least mistakes. First, a model that’s created can fit an absolute shrinkage and selection operator (LASSO). existing data set perfectly but fail to generalize (While these sound complicated, and can be, decision well to other data. A model trying to classify trees are essentially detailed flowcharts that start with a images may be trained on a data set of 10,000 root, create branches, and end with leaves.) images and learn to classify images in that data set If we understand why a black-box method works, we with 99 percent accuracy—but then perform only can trust it more with our decisions, explains Ročková, half as well when asked to analyze a different set one of the researchers trying to narrow the gap of images. between what’s done in practice and what’s known in A second problem is overconfidence. ML can theory. Booth’s Christian B. Hansen, often working with look at a data set and provide an answer as to MIT’s Victor Chernozhukov, was one of the first to show whether, say, a given image is of a dog. However, how LASSO could be used to solve questions related it won’t convey how certain it is of its answer, to inference and causal inference, giving people more which is crucial. If a person driving at night has confidence to use and trust it. BART is a widely used trouble seeing, she may slow down to read a ML method, available as free software, and Ročková’s sign, but a machine not registering uncertainty research was the first to show theoretically why it will just plow ahead. If the machine’s confidence works. Her research on uncertainty quantification for interval is plus or minus 1 percent, that’s one Bayesian ML won her a prestigious National Science thing, and a passenger would need to feel Foundation award for early-career researchers. comfortable with that amount of risk. If it’s plus ML, she says, is “a wonderful toolbox, but for peo- or minus 75 percent, getting in that car at night ple to feel safe using it, we need to better understand would be foolhardy and dangerous. “Imagine if its strengths and limitations. For example, there have it says 80 percent confident that this is nut free been studies where ML was shown to suffer from a and 20 percent that it has nuts. That would be lack of reproducibility. There is still a long way to nice rather than hearing it’s nut free,” says Misra. go before we can delegate our decisions entirely to “That’s the most dangerous part, not accounting machine intelligence.” for uncertainty.” Researchers are also testing their theories empir- ically. Chicago Booth’s Max Farrell, Tengyuan Liang, and Misra—in a paper about deep learning, a subset of ML that gives a particularly precise picture of even Researchers are trying, complex data—theoretically quantified the uncertainty involved in a predictive problem. Studying deep neural with theory and data, to networks, they used deep-learning methods to explain how it works. measure the probability of To illustrate their findings, they compared their uncertainty—in much the theoretical results with an actual corporate decision. A large US consumer products company sent out cata- same way so many of us logs to boost sales. When it sent out 200,000 catalogs, measure temperature an average of 6 percent of people made a purchase within three months and spent an average of $118 each. with a thermometer. The researchers compared these results with those of

44 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 45 eight deep-learning models and evaluated how close Moreover, as ML moves closer and closer to EVEN WHEN ALGORITHMS it was also more likely to produce a comparatively each came to predicting what actually happened. delivering accurate answers, many questions in the inaccurate forecast. “We have a truth out there, how people behave. We field have to do with whether ML is too accurate. OUTPERFORM HUMANS, This premium on perfection or near perfection is want to approximate people’s behaviors,” says Misra. Privacy advocates, among others, worry that ML could what one would expect from diminishing sensitivi- “The first question is whether the deep-learning model be so effective at finding patterns that it could discover PEOPLE OFTEN REJECT THEM ty to error, Dietvorst says, and can help explain why can approximate the truth. The second is, how close information we don’t want to share, and use that to people often prefer human forecasts to algorithmic is the approximation?” They measured closeness by help companies discriminate, even accidentally. Say Data science has created more and better appli- ones. Algorithms generally offer consistency and determining the smallest number of data needed to a company can tell from cell-phone data the angle at cations for algorithms to help predict outcomes greater average performance, whereas humans produce the right answer, within a margin of error. which a phone is being carried, and that could be a of interest to humans. But has the progress of are “a little worse on average, but they could do How many data did they need to arrive at an answer proxy for gender (as many men keep phones in their algorithmic decision aids outpaced people’s anything,” he says. “They could knock it out of the that is, with reasonable certainty, correct? The answer pockets while women carry phones in purses). Could willingness to trust them? Whether humans will park or be way off.” depends on what a company is trying to do and find it then use information about gender to perhaps put their faith in self-driving cars, ML-powered Dietvorst and Bharti also explored how the out, but the researchers provide theoretical guidance. charge men and women different prices? In 2019, a employment screening, and countless other tech- level of uncertainty in a decision-making setting “We’re confident now that the amount of data we used developer noticed that the credit limit offered him by nologies depends not only on how the algorithms interacts with diminishing sensitivity to error. The in that application is enough,” says Farrell. “There’s the Goldman Sachs–issued Apple Card was far higher perform, but also on how would-be users perceive researchers assigned participants to forecasting still uncertainty, but we’re happy with what we than that offered his wife, with whom he filed joint tax that performance. tasks with varying levels of uncertainty and had found.” (For more, read “How (in)accurate is machine returns and shared finances. In a tweet, he called the In 2015, Chicago Booth’s Berkeley J. Dietvorst, them choose between their own predictions and learning?” Winter 2019/20 and online.) The results, the Apple Card sexist and suspected a biased algorithm. with University of Pennsylvania’s Joseph P. those made by an algorithm. Even though the algo- researchers assert, will help companies compare and The New York State Department of Financial Services Simmons and Cade Massey, coined the phrase rithm always followed the best possible forecasting evaluate ML strategies they may want to use in their opened an inquiry. “algorithm aversion” to describe people’s tendency strategy, its odds of a perfect forecast went down various decisions. Is it possible to prove mathematically what ML can to distrust the predictions of algorithms, even after as uncertainty went up. This would be the case for and cannot learn? And if a business wants customers seeing them outperform humans. Now, further any forecaster, algorithmic or otherwise—and yet How close is too close? to know it’s behaving ethically, and to trust it, how can research from Dietvorst and Booth PhD student participants became more likely to choose their own Ultimately, ML is a tool that supports decision-making. it convince them it’s unable to use ML to violate their Soaham Bharti suggests that people may not be predictions as the level of uncertainty increased. Part of what makes it complicated to assess the privacy? These are issues that companies are trying to averse to algorithms per se but rather are willing This held even when participants recognized that uncertainty involved in ML is that the line is blurring sort out before regulators step in and write rules for to take risks in pursuit of exceptional accuracy: the algorithm performed better on average. A belief between who or what is actually doing individual tasks, them. they prefer the relatively high variance in how well that their own predictions were more likely to be and how those tasks contribute to the final decision. It’s also an issue that straddles mathematical and human forecasters perform, especially in uncertain perfect—even if less accurate on average—was more Many nonmathematical tasks inform a decision. social realms—and complicates the bigger question contexts. If there’s a higher likelihood of getting important, the researchers find. Think about the search for a vaccine, which involves about ML accuracy. Aside from how close ML is getting very good forecasts, they’ll put up with a higher Their study has implications for business decision many separate tasks. Not long ago, researchers hunting to delivering solid answers, how close do we want it to likelihood of very bad ones. makers and the general public, who often face what for relevant information in scientific literature might get? That’s a subjective question for which there can be In a series of experiments, Dietvorst and Bharti the researchers call “irreducible uncertainty”—situa- have read it themselves. Many still do, but some have no entirely accurate answer. find evidence that people have “diminishing sensi- tions where complete certainty isn’t possible until the assigned ML this task. Similarly, ML can identify protein In the case of Misra, who was in a restaurant in tivity to forecasting error”—in general, the first unit outcome is known. For example, there’s no way for shapes of interest. Thanks to the complexity of the Italy, wondering whether to trust his son’s health to a of error a forecaster (whether human or machine) managers to know next quarter’s product demand human body, there’s currently no substitute for testing translation app, what he wanted above all was accurate realizes feels more significant than the fifth, which until the quarter ends. If they bypass a superior a vaccine with a clinical trial. But ML may one day be information. And there were certain words he knew feels more significant than the 15th. The perceived algorithmic forecast and trust a human instead, able to comb through data from all clinical studies ever that matched the ML translation, which pushed him difference between a perfectly accurate forecast hoping for perfection, they’ll end up with a lower conducted and use them to predict health outcomes, toward trusting it. “We did end up using the app, and one that’s off by a measure of two is greater average forecast accuracy in the long run, which potentially accelerating the clinical-trial process. and it was fantastic,” he says. In that restaurant, and than the perceived difference between a forecast could lead to unnecessary inventory costs. “You’re running up against the boundary of how others during their travels, he and his son were able that’s off by 10 and a forecast that’s off by 12. People’s diminishing sensitivity to error and pref- people think about using statistics to make decisions,” to translate menus, write their concerns in Italian to In one experiment, participants choosing erence for variance could penalize some algorithms says Farrell. “Machine learning may be moving that make sure the staff understood, and avoid an allergic between two forecast models were willing to pay less than others. Although he hasn’t studied whether boundary in ways we’re not 100 percent sure of. By reaction. “We wouldn’t have been able to function, in more to upgrade to a model that was more likely to or how these preferences vary across different changing the tools available, we’re changing how those terms of making informed choices about food, as well be perfect than they were for other models offering types of algorithms, Dietvorst says the fact that decisions can get made.” as we did without the app,” says Misra. the same average performance—and the same machine-learning algorithms are able to improve There is uncertainty involved in every task. When In the moment, he recognized and trusted ML. But expected earnings—but lower odds of perfection. In their performance over time means that people may reading through thousands of scientific papers for as ML becomes increasingly pervasive, many people other studies, when presented with two models of- be more likely to believe they’re capable of perfect or relevant information, is ML overlooking anything may not even recognize that ML is behind the applica- fering the same average performance, participants near-perfect forecasts in the future.—Jeff Cockrell important? When identifying protein shapes, is tion they’re using. Unlike Misra, they won’t make a preferred the one that offered the best chance of ML missing any? While the study of ML makes it conscious decision about whether or not to trust it. Go to Review.ChicagoBooth.edu to see citations for research mentioned in a perfect or near-perfect forecast, even though this article. increasingly accurate, every time ML is assigned a task They simply will.—CBR it hasn’t done before, this introduces new possibilities Go to Review.ChicagoBooth.edu to see citations for research mentioned in this for uncertainty. article.

46 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 47 Travel expenditures are sent packing Page 53 // The avatars of the strategist Page 54 How should companies respond to Black Lives Matter? Page 66 // What should the ECB prioritize? Page 72

WE’VE MOVED What actually helps women HOUSE at work Quotas? Longer maternity leaves? Data provide insights

uring the Corporate Social Responsibility Revisited confer- D ence hosted by Chicago Booth, Booth’s Marianne Bertrand was joined by McKinsey Global Institute’s Mekala Krishnan for a discussion—mod- erated by Caroline Grossman, executive INTRODUCING CHICAGO BOOTH’S NEW LONDON CAMPUS: director of Booth’s Rustandy Center A PLACE TO ANSWER QUESTIONS, AND QUESTION ANSWERS. for Social Sector Innovation—of gender inequality in the workforce, including how companies can improve the Here, you’ll find a new home for Booth in the heart of the city. A recruitment and promotion of women. gathering place for students and alumni to engage with each other Grossman: Research and data and industry leaders. A crossroads for entrepreneurs, policymakers, must play a role when it comes to implementing a diversity and inclusion and executives from across Europe, the Middle East, and Africa. (D&I) strategy that actually moves the needle on equity. If you don’t collect Housing the Executive MBA ProgramEurope, Executive Education data, it’s hard to diagnose how your FRXUVHV, alumni programs and resources, and a conference center, the company is performing. If you don’t track data, you won’t know how you’re campus is your destination to engage with WKHUHJLRQ’s great thinkers improving. and bold innovators. One possible lever to pull that may make sense for some industries more than others is the question of :HORRNIRUZDUGWRVKDULQJWKLVH[FLWLQJVSDFHZLWK\RXRQFHZHFDQEH quotas. On the topic of hiring, quotas WRJHWKHUDJDLQ have been adopted in a few countries. Proponents see quotas as mechanisms to increase gender and racial diversity, but they can also lead to concerns like tokenism. On the basis of the data you’ve seen, what’s your take? THE UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS ONE BARTHOLOMEW CLOSE BARTS SQUARE LONDON EC1A 7BL ILLUSTRATION BY CHRIS GASH Winter 2020/21 Chicago Booth Review 49 +44 (0)20.7070.2200 “Quotas didn’t Bertrand: We studied the first gender You would think, looking at that fact, “It’s important to Krishnan: A corollary to that question Much more promising are policies quota policy that was adopted in that the reason women are dropping off is: If companies are putting in place that try to change the norms, moving really do anything Europe—in Norway at the beginning of at that first promotion point is that’s the think about these certain D&I practices, when do you away from maternity-leave policies the millennium. Quotas didn’t really do age where they are starting families, and expect to see those practices pay off to parental-leave policies and pater- bad, but they are anything bad, but they are not the kind so it’s women leaving companies. But not as ‘women in representation data? Maybe with nity-leave policies. The Scandinavian not the kind of of transformative tool that companies actually, when we looked at the data, policies’ but as hiring, you expect to see it in the countries have been at the frontier may be looking for if they’re really trying attrition rates for women and men were relatively near term. But on inclusion in terms of trying to put in place transformative to improve diversity. essentially the same. It was the promo- ‘people policies’ practices, for example promotion policies that incentivize fathers to stay tool that Norway—very similar to a lot of other tion rates that were quite different. This and make them practices, it may take time. We at home and share the burden with European countries after it—passed emphasizes why data are so important. haven’t looked at a timeline analysis mothers when kids are born. companies may a law that forced publicly traded ones that everyone of this kind because these data sets corporations to have 40 percent of Bertrand: So that’s super interesting. are all relatively new. Krishnan: These policies change be looking for women on their board. There was a lot This is the callout for more corpora- in the organization norms about who actually bears this if they’re really of pushback by corporations that were tions to make a study of the pipeline— feels comfortable Bertrand: There are two ways I “burden.” You have both men and basically saying, “We’re never going to and how it evolves—available, because think about the relationship between women taking leave. This can help trying to improve be able to find women with the kind of absent the ability to look inside of adopting.” diversity and inclusion and corporate create equality in terms of career diversity.” talent that is required to be on those corporations and see the pipeline that performance. One, there may be progression, for example. It makes corporate boards.” you’re able to see in your consulting — MEKALA KRISHNAN value in having more diversity in it OK for women to adopt some of — MARIANNE BERTRAND Corporations were clearly wrong work, it’s really hard for us researchers management for corporate outcomes. these policies, because people don’t when making that statement. We were to bring additional insights. There are more ideas, different ideas. feel like their careers are threatened. able to document the qualifications of the There’s a lot of good research that That’s valuable. It is just remarkable It’s important to think about women that were appointed to the board. documents the dramatic effect that the to me that that’s an argument we hear these not as “women policies” but These women were, if anything, more birth of a first child has on the career very often, but there’s really not a as “people policies” and make them qualified than the very few women who opportunities of women. You see the good piece of research that convinc- ones that everyone in the organiza- were on the board prior to the quotas careers of men and women evolving ingly shows that diversity is valuable tion feels comfortable adopting. being put in place. parallel with each other up to the point for corporate outcomes. But the idea theoretically is by of the birth of a first child. The second one is pretty straight- Bertrand: I just cannot reinforce that appointing more women to the boards, forward to me. If you are focusing last point you made enough. The you may have more women joining the Krishnan: We’ve done some simple all of your recruitment on one half more we take gender out of these C-suites and rising in the operational analysis that correlates the time that of the population because you’re policies, the more we make them ranks of the organization. And there women versus men spend on what we only looking at men, there’s no way policies for all employees, the better was no sign of that. call unpaid care work, things such as that you’re on the frontier in terms it will be. The main takeaway for me is that childcare and household work, with of the talents that you bring within there was a sense in a lot of European labor-force participation rates and rela- your organization. Grossman: As you think about countries that, “OK, we have these quo- tive rates in leadership positions. There diversity and inclusion, and both tas in place. That’s it. Our job is done, are strong relationships. In our surveys, Krishnan: In many developed about gender and race, what are and we’ve achieved gender diversity in one of the top challenges that women countries, women are graduating some of the common themes you the corporate sector.” And that would cite is what they call the double-burden from college at the same or a higher look at, and where do you see be a really, really big mistake to assume. syndrome, or the fact that they’re rate than men. So it’s not just innate them diverging? working both in the workplace as well talent. It’s also learned skills that Krishnan: Our research would suggest as in the home. It may be limiting how women possess, maybe at higher Bertrand: Bias and discrimination is two things that I think are of interest many hours that women work. It may be rates than men. It’s smart business a much more important force when it to this conversation. First, a lot of limiting the types of opportunities they practice to be tapping into that comes to thinking about the under- work correlates representation in reach out for. It may be impacting their talent pool. representation of racial minorities in leadership positions with corporate own aspirations for their career. corporations than it is with respect to outcomes. But when you look at Grossman: There is some data on gender. I am not saying that there’s boards, that correlation is not as Bertrand: In the corporate sector, parental-leave policies. What are the no gender discrimination, but I do strong as it is for women in top there is massive financial reward for the effects of those? believe the forces that we just talked management positions. If you think ability to work very, very long hours. So about are much more important than about appointing women to boards the difficulty women face is that in order Bertrand: The research says pretty discrimination per se to explain why as a corporate-performance driver, to succeed, you have to work these clearly that longer maternity leaves women are underrepresented. When it may be less helpful than having long hours. are not going to be beneficial to it comes to racial minorities, bias, women in top management positions. women, especially more-educated whether it is implicit or explicit, is a Second, when you look at the Grossman: Mekala, you shared that women. As you make this leave much more important force. corporate pipeline, and you look at the data don’t indicate that having more longer, women become separated Also, there’s a lot that comes data from our survey of North American women on boards actually has as much from the labor market for longer, and with being a racial minority in companies, you see a lot of women fall off of an effect on corporate performance there’s a price for that. That’s one America or in Europe that is not somewhere between entry-level positions as women in top management positions. of the explanations. The other one associated with just being a woman. and C-suites, at the first promotion. On What is the time horizon on that? We is corporations may not want to put It goes hand in hand with economic Put ‘people policies’ into action average, if you’re focusing your efforts know performance is measured on a single women in important positions, disadvantage, lower-quality schools, only at the end of the pipeline, you’re not quarterly basis, but when would you Visit our website to learn more knowing that these women will leave lower-quality public services, and really solving the issue, which is enabling expect to see the impact of diversity on about research related to diversity. the company for an extended period lower-quality amenities because of women to make that first promotion. boards on corporate performance? of time when they become mothers. residential segregation.

50 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 51 “You cannot do this Boys and girls are born in equally Another thing that comes from the rich families. They are very different debiasing literature in psychology is to kind of training conversations in my mind, at least move away from thinking in categories. when I think about what we do It’s not about men and women. It’s with employees in terms of improving women’s about people. once a year and then representation compared with when it One of the methods that psychol- comes to improving racial minorities’ ogists use to de-bias people is to get think the job is over. representation. them to think about the person—indi- You need to think viduating. Think beyond the category Grossman: What are things that each and try to imagine putting yourself in DAVID ALTIG, JOSE MARIA BARRERO, even after the pandemic is over. Executives Overall, these results paint a fairly pes- about continuous of us can do in our day-to-day work, the shoes of the person. NICK BLOOM, STEVEN J. DAVIS, also expect to triple the share of external simistic picture, and companies surveyed particularly in a virtual world, to check There are lots of tools that have BRENT MEYER, EMIL MIHAYLOV, meetings—those with clients, patients, sup- are not alone in this view. A forecast from nudges, structural our unconscious bias, be advocates been shown in lab experiments to AND NICK PARKER pliers, and customers—conducted virtually the International Air Transport Association change.” and allies, and drive meaningful help in reducing bias. There are lots of relative to the pre-pandemic situation. projects air travel will remain below its change? corporations that are using trainings, In the SBU wave fielded from July 13 pre-pandemic trend through 2024. — MEKALA KRISHNAN and it would be fantastic to allow to 24, we asked business decision makers Such a large, broad-based reduction in Krishnan: There are a variety of researchers to take a look at whether or Travel to forecast the size of their travel budgets travel spending not only suggests a sluggish trainings that companies do to create not this makes a difference. Beside the after the pandemic relative to their and potentially drawn-out recovery for the awareness of unconscious bias. Step work in the lab, we really don’t have pre-pandemic budgets. travel, accommodation, and transportation one is recognizing that you have the data to assess whether those kinds expenditures We also asked how the share of external industries, but it indicates that companies unconscious biases. We have these of training programs matter. meetings conducted virtually will change. expect to shift from face-to-face meetings to biases because they can be helpful, in If you don’t believe that those are sent Air travel accounted for roughly 40 lower-cost virtual meetings. And that’s what some ways, for processing the world trainings are going to make a long-term percent of 2019 travel expenses for most we found when we asked companies about around us. But recognize that you difference, have formal processes in broad industries, with the remainder split the share of virtual meetings they held have your own worldview, and there place. When I think about my own orga- packing between accommodation and all other in 2019 versus the share they anticipate may be other people experiencing real nization and how we do recruiting, I Companies anticipate travel costs. Industries such as business ser- holding in a post-COVID-19 world. challenges that you may not be seeing feel like over the two decades I’ve been vices, information, finance, and insurance After the pandemic ends, companies or be aware of. doing it, we are moving slowly toward conducting half of all external accounted for an outsize share of overall anticipate conducting roughly half of all Step two is having the conversation. having more and more structure. As meetings by video travel spending, 42 percent in our data. meetings with external clients, customers, As we’ve been surveying employers and much as we dislike structure, because The pandemic led many companies patients, and suppliers by videoconfer- employees, it’s stark how often employ- it feels bureaucratic, structures really n the months (and years) following the to halt or severely curtail travel, but the ence. Said another way, they expect the ers put in place policies and practices help. The most common example that terrorist attacks of September 11, 2001, question is how business travel recovers share of virtual meetings to triple relative that employees don’t really care about I always come back to is just rejecting I airline travel was fundamentally al- fully after the pandemic. Unfortunately for to pre-pandemic averages. or want. We often make assumptions someone for a promotion or a job tered. Despite a host of new measures the transportation and travel industries, The coronavirus pandemic is reshap- about what people want and need, and because he or she’s not a good fit. to increase safety, not until April 2004 did our results cast doubt on the prospect of a ing the economic landscape in myriad the assumptions may be completely That is not the world that we should airlines see passenger loads reach pre-9/11 quick and complete rebound. Companies ways. Business travel appears to be front flawed. Having an authentic conversation still be in. We should have explicit levels. The COVID-19 pandemic is having anticipate slashing their annual travel and center in this transformation. coming from a place of curiosity and a criteria ahead of time and not deviate an even more dramatic impact on plane expenditures by nearly 30 percent (relative Move over, jet lag—here comes Zoom spirit of learning is important. from those. travel, according to current and former to 2019 expenditures) when concerns fatigue.—CBR There are things you can do airline executives. On the prospect of over the virus subside. The expected structurally, even as an individual. Krishnan: The company training on when travel could return to pre-COVID-19 decline in spending is particularly severe This article is adapted from a post by the If you’re a manager, ensure that a unconscious bias should not become a levels, a former CEO of American Airlines, for the industries we mentioned earlier. authors that appeared on the Federal Reserve performance review has an uncon- checkbox. You cannot do this kind of Robert Crandall, flatly predicted in the Companies in these industries are marking Bank of Atlanta’s macroblog. Please go to scious-bias check. If you think about training with employees once a year Wall Street Journal that “you are never in a nearly 40 percent reduction in travel Review.ChicagoBooth.edu to see titles all the activities you engage in, find and then think the job is over. You need going to see the volume of business travel spending after the pandemic is over. and affiliations for all of the authors. ways to check your biases across to think about continuous nudges, that you’ve seen in the past.” those day-to-day activities. structural change.—CBR Official statistics support this view. Post-pandemic travel budgets Passenger travel fell off a cliff after the Across most industries, executives expect to allocate much less to business trips. Bertrand: I’m inspired by the work This is an edited and condensed pandemic struck. Transportation across of psychologists who have studied transcript of the discussion. A longer all modes fell, as of April 2020, to 10 Anticipated change in companies’ travel spending after the pandemic implicit bias and tell us about the version is available on ProMarket.org. percent of its average level during 2000— July 2020 survey (338 executives responding) particular situations under which it is more than two decades ago. According to By industry more likely to creep in and drive our Marianne Bertrand is the Chris P. Transportation Security Administration decisions. We know implicit bias is Dialynas Distinguished Service Professor data, numbers at US airports are only Overall Construction, Manu- Retail and Business Other more likely to drive our decisions when of Economics and a Willard Graham 68 percent below last year’s levels (as average real estate, facturing wholesale services services we are rushed, stressed, angry, and Faculty Scholar at Chicago Booth and of September), as opposed to down 95 mining, and trade even happy. The more we can move faculty director of Booth’s Rustandy percent in early April. That leads folks to utilities away from human-resource decisions Center for Social Sector Innovation. wonder how long it will take until people being made under those kinds of time Caroline Grossman is executive director are once again comfortable enough to −5.6% pressures, the better it will be. There’s of the Rustandy Center and adjunct starting flying for work or leisure. −28.6% −26.1% −32.9% also lots of work, again in psychology, assistant professor of strategy at Booth. Results from our Survey of Business −36.7% −36.6% that tells us that we can train ourselves Mekala Krishnan is a senior fellow at the Uncertainty suggest that US companies to be less biased. McKinsey Global Institute. expect much lower travel expenditures Altig et al., 2020; Survey of Business Uncertainty by Federal Reserve Bank of Atlanta, Stanford, and Chicago Booth

52 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 53 Because these two schools differ in their doctrines (assumptions and beliefs) and principles (ideas and insights), each envisions a distinct role for the strategist. One way to view the strategist’s role is RAM SHIVAKUMAR through the lens of the Sanskrit epithet avatar, which literally means the incar- nation of a deity on earth. For instance, the Hindu god Vishnu, the preserver of The avatars cosmic order, is believed to have appeared on earth in 10 avatars. In more colloquial of the terms, avatar refers to the embodiment of an attitude, persona, or orientation. Broadly speaking, the strategist strategist appears in four avatars: the diagnostician, This one ubiquitous job the systems thinker, the explorer, and the transformer. The strategist takes on actually has four distinct roles distinct avatars because the nature of problems and opportunities within and mong the occupational titles that across companies differs. Unlike Vishnu, have become ubiquitous in the a strategist is unlikely to take on all four A 21st century, “strategist” remains avatars over the course of her career. something of a mystery. What does Rather, events and conditions dictate the strategist do? What skills and mindset which avatar is most likely to succeed. distinguish the strategist from others? Is the strategist a visionary whose The strategist as diagnostician mandate is to look into the future and set The diagnostician must answer two inter- a course of direction? A planner whose related sets of questions. What problems charter is to develop and implement the should the organization address? And company’s strategic plan? An organization what are the promising opportunities that builder whose mission is to inspire a must be pursued? vibrant and energetic culture? Or is it all Most organizations face a variety of of the above? problems. Some problems occur because Academic scholarship does not settle of changes in the external environment, this question. Over the past 50 years, many including shifts in consumer tastes (e.g., competing schools of thought on strategy the growth of online commerce) or the have emerged. The two most prominent emergence of powerful substitutes (e.g., are the positioning school and the people the Apple iPhone for the BlackBerry). school. The positioning school, closely as- Some result from organizational and sociated with ideas developed by Harvard’s leadership failures (e.g., Sears and Michael Porter, argues that strategy is all General Electric). Resource constraints about distinctiveness and not operational dictate that the organization address efficiency. In this view, the acquisition its most critical problems—those that, of a valuable position depends on the when solved, make a material difference unique combination of activities that an to the organization’s performance and organization performs (or controls). The relative position. An astute diagnostician people school, closely associated with the excels in identifying these problems and ideas of Stanford’s Jeffrey Pfeffer, posits in evaluating the economic benefits and that the principal difference between costs of alternative interventions. high-performance organizations and others Pinpointing the most promising lies in how each group manages its most business opportunities is no easy task. important resource—people. In this view, In his book, The Outsiders, private-equity high-performance organizations foster a investor William Thorndike Jr. argued that culture that rewards teamwork, integrity, the best CEOs are defined by their skills

ILLUSTRATION BY SAM PEET BY ILLUSTRATION and commitment. at project selection and capital allocation.

54 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 55 Even CEOs of superstar companies can The systems The systems thinker’s second task is The explorer recognizes that explora- When Henry Ford became CEO of inhibited new initiatives. Microsoft’s get things wrong—consider such product to match distinct business processes to tion is an art form and that developing Ford Motors in 1906, the automobile stock price had not budged in over a failures as Google+, the Amazon Fire thinker is activity within the company and to set one’s skills as an explorer requires a industry was in its infancy. It rarely decade, and its market capitalization Phone, and Samsung’s Galaxy Note, not to policy directives on how every unit and lot of exploring. The big payoff from produced more than a few thousand hovered around $200 billion, almost 60 mention the many businesses that missed acutely aware activity initiates and responds to change. exploration is the discovery of the things cars, as manufacturers struggled to percent below its 2000 peak. their chance to be superstars because that feedback The systems thinker aims to see that do not work. Legions of entrepre- master product and process. Car Nadella made several key decisions, of strategic missteps. Excite, the leading the forest as well as the trees, looking neurs pivot their businesses as they bodies were delivered by horse-drawn exiting the mobile-phone business, em- search engine in the 1990s, had a chance loops mean that beyond the first-order effects of explore possibilities. Twitter started as a carriages, while workers rotated from bracing open and integrated computing, to buy Google for $750,000 but passed. In changes to anticipate the size and podcasting platform and Craigslist as an one assembly station to another. and doubling down on cloud computing. 2008, Yahoo turned down Microsoft’s $45 success begets magnitude of subsequent opportuni- email list for sharing social events. Like an explorer, Henry Ford But importantly, he transformed how billion buyout offer. Motorola, the world’s success and ties and constraints. He then designs The explorer recognizes that not all searched everywhere for expertise and the organization operated, insisting that biggest manufacturer of mobile phones a response system so that if it were moments in time are of equal signifi- experience to improve the process. He everyone at Microsoft act as part of one until 2006, declined to start making failure begets to fail, it would do so in noncritical cance. Most moments are ordinary, but hired experts from other industries company and “not a confederation of smartphones until 2010. failure. ways before failing in catastrophic some are special because the fate of a such as steel, canning, and brewing, fiefdoms,” and changed the culture from The diagnostician is part doctor and ones—the engineering principle of project, product, or company hangs in which were also experimenting with one of competition to collaboration. part detective. Like the fictional Dr. House “leak-before-break.” the balance. The explorer cultivates the mass manufacturing. It took many “Anything is possible for a company in the TV series House, the diagnostician The systems thinker is acutely aware art of recognizing when they are in such years for Ford to come up with the first when it is about listening, learning, must develop the capacity to embrace that feedback loops mean that success a pivotal moment, and develops the moving-assembly line, complete with a and harnessing individual passions unconventional positions. And like Agatha begets success and failure begets failure. skills to act promptly. winch and a rope stretched across the and talents to the company’s mission,” Christie’s fictional detective Hercule The 1980 IBM-Microsoft agreement The explorer respects the cliché floor, but by 1916, the line had improved Nadella noted in his 2017 book Hit Poirot, the diagnostician must be a keen illustrates this principle. That year, “Rather be lucky than good,” but also so significantly that annual volume of the Refresh. “Creating that kind of culture is listener with an ability to piece together IBM asked Bill Gates and his fledgling recognizes that being lucky requires her company’s Model T had grown sevenfold my chief job as CEO.” puzzles from seemingly irrelevant details. startup, Microsoft, to develop an to embrace the possibilities. Indeed, it in four years and the price of the car had Microsoft’s market capitalization has Challenging the status quo worked for operating system for IBM’s new personal is because the explorer recognizes that dropped to $300. grown more than fivefold under Nadella, Louis Gerstner, who became CEO of IBM computer. The first part of the deal that random forces and black swans are reestablishing the company as one of the in 1991 after several years of declining Gates structured was standard: IBM more powerful than best-laid plans that The strategist as transformer most valuable in the world. revenues and profits. Rather than follow would have to pay Microsoft a develop- he includes unplanned and random The principal aim of the transformer is through on the plan of his predecessor, ment fee of $200,000 and as much as search in everyday routines. In 1928, to alter the assumptions, perceptions, Finding your avatar the late John Aker, to split the company $500,000 for incremental development the late Percy Spencer, the Raytheon behaviors, and practices of internal One does not need the title of strategist into five separate businesses, Gerstner work. The second part of the deal is engineer, created the microwave while and external constituents. This entails to be one. Each of us can benefit from chose to keep the units together, reason- noteworthy for Gates’s recognition of trying to create a device to track planes. recognizing when and why change is thinking strategically, and everyone ing that each of the businesses could help feedback effects. He gave IBM the rights And Sara Blakely’s attempts at creating necessary and how to initiate it. has the capacity to achieve a degree of reposition IBM as a services company. to use the Microsoft operating system modified pantyhose led to the creation The transformer is acutely aware that proficiency as a strategist. This consists He was proven right. But Ron Johnson’s and several related products for no of shapewear company Spanx. the battle for ideas must be won before of responding to two challenges. tenure running J.C. Penney provides a additional fees, on the condition that change is initiated. The transformer aims The first challenge is to identify the counterexample. Tasked with engineering Microsoft had exclusive rights to license to understand their audience, including contexts in which your natural avatars a turnaround upon taking over in 2011, the system and related software to the concerns, constraints, and priorities. will thrive. Your avatars will not be Johnson saw Penney’s business model as other manufacturers. Elon Musk at Tesla has become a master highly sought after and rewarded in the problem. His prescription of “fair and Why did Gates introduce this second at winning over external constituents. His every organization, so you must choose square” pricing and a store-within-a-store The strategist as systems thinker element? In their book, The Business of headline-grabbing announcements—such well. Context includes people—knowing model was a disaster, and revenues fell by “Managers do not solve problems,” the Platforms, MIT’s Michael A. Cusumano, as the launch of the Cybertruck or the whom to trust more and whom less—and 25 percent in a year. late University of Pennsylvania systems University of Surrey’s Annabelle Gawer, Roadster 2.0—are designed to win the being open-minded and willing to adapt A diagnostician must develop the theorist Russell Ackoff famously said, and Harvard’s David B. Yoffie note that support of investors and customers by as you gather evidence. Where and with capacity to recognize opportunities when “they manage messes.” Messes emerge Gates was aware of a growing “clone” reinforcing the idea that Tesla is the most whom will you best be able to demon- they appear—and to wait for opportunities because it is difficult to decipher the industry and calculated that exclusive innovative company in the world. Within strate your natural abilities and skills? if none are evident. When Steve Jobs interconnections between and among licensing could be very valuable if the a day of unveiling a demo version of The second challenge is to develop returned to Apple as CEO in 1997, the business units and the external environ- market for personal computers took off. the Cybertruck in November 2019, Tesla your temperament and capacities so company was in disarray. With the wide- ment. And messes are difficult to manage And indeed it did: an entire ecosystem had received 146,000 preorders for that you can choose the “right” avatar spread adoption of Windows and personal because it is hard to save what is valuable of hardware and software developers the vehicle. for a situation. Your psychological computers, speculation was rife that without causing damage. emerged during the 1980s and ’90s The transformer recognizes that mindset is as important as your skill Apple would either fail or be acquired. The systems thinker’s first task is to centered around Microsoft’s operating transformation is as much an internal set. King’s College historian Lawrence Jobs responded by rapidly shrinking the understand the nature of the intercon- system, which drove the company’s The transformer is exercise of reshaping and energizing the Freedman in his book Strategy: A company to a sustainable level. He cut or nections. Take, for example, rapid and revenues from $16 million in 1981 to $19 acutely aware that organization as it is an external exercise History argues that proficiency as a streamlined product lines and outsourced frequent changes in technology. These billion by 1999. of altering the position of the company. strategist requires a high degree of production. According to the book Good have implications for an organization’s the battle for ideas Satya Nadella’s transformation of metis, the “capacity to think ahead, Strategy, Bad Strategy, by University of human-resources policies—who should The strategist as explorer Microsoft illustrates the importance of attend to detail, grasp how others think California at Los Angeles’ Richard Rumelt, be hired, how they should be trained Exploration involves search, experi- must be won before organizational transformation. When and behave, and possess a general when Jobs was asked in 1998 how Apple and managed, etc. Technological change mentation, and innovation. Exploration change is initiated. Nadella became CEO of Microsoft in resourcefulness.” How can you shape was going to grow, he replied, “I am going also forces the organization to evaluate is risky because, as the late Stanford 2014, the company was widely viewed as your natural abilities and your mindset to wait for the next big thing.” Less than a its structure and work practices: Should sociologist James G. March noted in a re- The transformer sliding toward irrelevance. The focus of to adapt to the circumstances?—CBR decade later, Apple launched the iPhone, it have a flatter or steeper hierarchy? search paper published in Organization aims to understand the tech sector had shifted from desktop arguably the most revolutionary product Should employees be given substantial Science in 1991, “its returns are uncertain, computers to smartphones. The com- Ram Shivakumar is adjunct professor of in technology history. autonomy? And so on. distant, and often negative.” their audience. pany was heavily siloed, and infighting economics and strategy at Chicago Booth.

56 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 57 scalable is this opportunity? Bond- The notion that debt matters, that should anyone have to pay any debt if THE GRUMPY market investors lend 100 percent of spending must be financed sooner our federal government has access to ECONOMIST GDP to the US government at 1 percent or later by taxes on someone, and a money machine? Why work? Why JOHN H. interest. Will they lend 200 percent of that those taxes will be economically should the federal government not just COCHRANE GDP at the same low interest rate, or destructive, has vanished from keep printing money and sending it to will they start to require higher inter- Washington discourse on both sides us? Other countries are not so lucky as est rates? A government that finances of the aisle. The COVID-19 response we are. Why should emerging markets itself only with money and no debt resembles a sequence of million-dollar pay back debt if the US does not have Debt still need not pay back the money—but, bets by non–socially distanced drunks to? Bail them out. obviously, that government cannot at a secretly reopened bar: “I’ll spend These are inescapable logical conclu- matters double the opportunity. a trillion dollars!” “No, I’ll spend two sions of the view that federal debt has More deeply, like many good trillion dollars!” That anyone has to pay no fiscal cost. If you’re uncomfortable When the government borrows, arguments, this one misses the central for this is unmentioned. with the end of the trip, perhaps you someone—eventually—will have point. What happens when the US And who is to blame the politicians should revisit the assumption from to pay it back piles on larger and larger debt-to-GDP for acting this way, really? Markets which it inexorably follows. ratios each year, and doubles the offer 1 percent long-term interest Advocates point to World War II. It is n 2021, the United States is projected debt-to-GDP ratio in each decennial rates—negative in real terms. Blowout true that the US exited the war with an to pass a milestone: US federal debt crisis? The argument I referenced spending financed by the Fed printing even greater debt-to-GDP ratio than it has Iis forecast to exceed 100 percent above is about sustainability of a large money—which is no different from today. It was not painless. Growth higher of GDP. In fact, according to an but steady debt-to-GDP ratio. It really debt—has resulted in no inflation so than interest rates was part of how the US October estimate from the nonpartisan is only about whether the government far. In the face of the deep concerns of managed it, but it’s not the whole story. Committee for a Responsible Federal can run a small, steady deficit, or must current voters, worry that our children Two bouts of inflation, in the late 1940s Budget, the debt has already eclipsed run a small, steady surplus to maintain and grandchildren might have to pay and in the ’70s, devalued much debt. that mark. But does all this debt matter, that steady debt-to-GDP ratio. It does off debt is not particularly salient. The US ran steady primary surpluses or is worrying about debt passé? not justify a debt-to-GDP ratio that They’re either in the basement playing (excluding interest costs) from the 1940s This debate has been going on grows forever. video games or out protesting for the through the mid-’70s. Spending was low among economists for a while. Modern Everyone recognizes that there is end of capitalism anyway. Politicians in the pre-entitlement economy, and the monetary theory has gotten a lot of a debt-to-GDP ratio limit out there will take the cheap money as long as government was not totting up hundreds attention for its arguments that debt somewhere. It is not a hard and fast markets are happy to provide it. of trillions in unfunded promises. The has few consequences, but one need limit. Bondholder patience combines The economists, even the modern war, and its spending, was over. Statutory not go to the extremes of MMT to find government debt, other opportuni- monetary theorists, envision debt personal taxes and actual corporate support for such a view. Some in the ties, and bondholders’ view of the issued to pay for worthy investments, taxes were high. Financial repression mainstream of economics have argued government’s political stability and or valuable spending, all undertaken and closed international capital markets that since the interest rate on US willingness to pay back debt. What is with a careful green-eyeshade kept interest rates on government government debt may be lower than clear is that finding the limit will be approach. Washington has figured out bonds low, and deprived Americans of the growth rate of the economy, the US unpleasant, involving essentially a the logical conclusion of the idea that better investment opportunities—and can roll over debt forever. Others have sovereign debt crisis, a sharp inflation, federal debt doesn’t matter, in a way the world’s economies of much-needed advocated that additional debt-financed devaluation, and financial catastrophe. these economists have not: If debt investment capital. With all that, we still spending may have so strong a multipli- The view that debt-financed spend- and money printing have no fiscal had an international debt crisis in the er as to pay for itself, a super-Keynesian ing pays for itself is likewise limited to cost, why be careful about how you early 1970s, prompting the abandonment version of the Laffer curve. a period of “secular stagnation” with spend money? Send checks to voters. In the face of the of the Bretton Woods system and Unlike MMT, these are logically consis- perennially deficient demand, sticky Why not? It’s costless. No boondoggle depreciation of the dollar. tent possibilities. But are they right? prices and wages, and other require- project is objectionable. Send billions deep concerns of In short, the US grew out of WWII The interest rate on US government ments of extreme Keynesianism. Are to prop up dying businesses. Why not? current voters, debt by not borrowing any more, by debt is indeed slightly lower than good we in such a period, or is COVID-19 It’s costless. Why bother fixing the post decades of fiscal probity, and by strong guesses of the economy’s growth rate, a supply shock? Was the economy office? Send them another $25 billion. worry that our supply-side growth in a deregulated as sadly low as the latter is, so if we really suffering from lack of demand Or $100 billion. economy. We have none of these roll over the debt with no additional when unemployment hit a 50-year We can go further. Why should children and reassurances going forward. And this deficits, the debt-to-GDP ratio will low this past February? citizens have to pay back debts if the grandchildren event, and the United Kingdom’s exit slowly decline and the US can indeed Washington knows no such sophisti- federal government does not have to from Napoleonic War debt in the 1800s run this slow-rolling Ponzi scheme. cation, but our politicians have grasped do so? Bail out student loans. Bail out might have to by starting the industrial revolution, But how long will this happy the logical implications of the propo- bankrupt state and municipal gov- pay off debt is not are about the only historical examples circumstance of ultralow interest rates sition that debt does not matter with ernments and their pensions. Cancel of a semisuccessful repayment of this continue? More to the point, how more clarity than have economists. the rent. Cancel the mortgage. Why particularly salient. much debt. Otherwise, the history of

58 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 59 large sovereign debts is one long, sorry Nobody expects is going on, as well as a contested tale of default, inflation, devaluation, election, and militias even roam the and consequent financial chaos. The a debt crisis, or it streets of still-boarded-up cities. Add a UK did not exit WWII debt success- huge economic recession, but without fully, leading to crisis after crisis, and would have already any reformed spending promises. everyone else did worse. happened. At this point, the US has, say, 150 Still, what should we be afraid of? percent debt to GDP. It needs to borrow The vision of grandchildren saddled another $5 trillion–$10 trillion, or get with taxes, or even just unable to people to hold that much more newly borrow more while the economy sits printed money, to bail out once again at its limit of, say, 200 percent debt and pay everyone’s bills for a while. It to GDP, is indeed not a salient brake will need another $10 trillion or so to roll to spending. over short-maturity debt. At some point, That is not the danger. The danger bond investors see the end coming, as the US faces, the danger we should they did for Greece, and refuse. Not only repeat and keep in mind, is a debt crisis. must the US then inflate or default, but We print our own money, so the result the normal crisis-mitigation policies—the may be a sharp inflation that wipes firehouse of debt relief, bailout, and away the value of debt rather than an stimulus that everyone expects—are even more disruptive default, but the absent, together with our capacity for consequences will be almost as dire. military or public-health spending to Imagine that five or even 10 years meet the shock that sparks the crisis. from now we have another crisis, Interest rates do not signal such which we surely will. It might be problems. They never do. Greek another, worse, pandemic, or a war interest rates were low right up until involving China, Russia, or the Middle they weren’t. Interest rates did not East. Imagine the US follows its signal the inflation of the 1970s, or INTERESTED IN present trends of partisan government the disinflation of the ’80s. Nobody dysfunction, so an impeachment expects a debt crisis, or it would have already happened. As noted above, there is no defined SOCIAL IMPACT A test of bondholders’ patience limit to the debt-to-GDP ratio that policy US federal debt as a percentage of GDP has gone up sharply, and is projected to makers can use for guidance. Countries continue its climb in coming years. can borrow a huge amount when they RESEARCH? have a decent plan for paying it back. Federal debt held by the public 200% Countries have had debt crises at quite As a percentage of GDP low debt-to-GDP ratios when they did not have a decent plan for paying it back. $P\/HKPDQ$%Ü0%$Ü0'ÜIRXQGHUDQG&(2 Debt crises come when bondholders want RIWKH/DNH7DQJDQ\LND)ORDWLQJ+HDOWK&OLQLFODXQFKHG SO ARE WE. UHVHDUFKLQSDUWQHUVKLSZLWKWKH5XVWDQG\&HQWHUDQG%DULV to get out before the other bondholders $WD&KRRNDV]LDQ)DPLO\3URIHVVRURI2SHUDWLRQV get out. If they see default, haircuts, 0DQDJHPHQWDW&KLFDJR%RRWK 150% default via taxation, or inflation on the horizon, they get out. Sound long-term World War II Projection financial strategy matters. We cannot tell when the conflagration will come. But we can remove the kindling and gasoline lying around. Reform long-term spending promises in At Chicago Booth’s Rustandy Center for Social Sector Innovation, Join our community: 100% line with long-term revenues. Reform the we advance cutting-edge, faculty-led social sector research &hicago%ooth.edu/ tax code to raise money with less damage partnerships worldwide. Then we work to share important to the economy. The Treasury and Fed research/rustandy/ should secure long-term government insights that can advance KRZsectors operate and address some newsletter financing, locking in low interest rates. of the most challenging social issues. Get the latest research And spend only as if someone has to pay from our monthly newsletter. 50% it back. Because someone will have to pay it back.—CBR

John H. Cochrane is a senior fellow at the Hoover Institution at Stanford Connect with us: University and distinguished senior @RustandyCenter 0% fellow at Chicago Booth. This essay is #CreateImpact 1900 1920 1940 1960 1980 2000 2020 2040 adapted from two posts on his blog, The US Congressional Budget Office Grumpy Economist. [email protected]

60 Chicago Booth Review Winter 2020/21 Data from Twitter can help illumi- nate the collective mood. We examined a sample of 1 million tweets per month PRADEEP K. between January and May 2020 using CHINTAGUNTA the Linguistic Inquiry and Word Count (LIWC) program to identify words conveying either positive or negative emotions. We observed a roughly 8 When percent decrease in positive emotionali- ty over that time (see chart below). commitment The highly charged and increasingly negative emotions surrounding current events make this a difficult environment speaks for marketers and other corporate communicators. Historically, many volumes companies have taken apolitical stances on controversial events; most have pre- How companies have ferred to be neutral observers when it reacted to Black Lives Matter comes to sociopolitical topics. However, customers today, especially millennial hese are turbulent and emotional customers, expect the companies to times. The COVID-19 pandemic, whom they are loyal to be more vocal T economic collapse across coun- about such issues. They expect them tries, autonomy protests in Hong to take a position that aligns with Kong, protests of police brutality and their own beliefs. This expectation racism in the United States, and a bor- is reflected in millennial purchasing der dispute between India and China are behavior: a Boston Consulting Group a few of the major events and conflicts study finds that millennials are more that dominated public consciousness in likely to purchase products that are 2020—and those don’t even include the associated with a particular cause than US presidential election. We are living are nonmillennials. at the intersection of momentous and This new customer expectation has uncertain developments. resulted in more companies issuing corporate responses to a wide variety of issues. To better understand the Share of words in tweets reputational implications of these state- during the first months of 2020 ments, we analyzed public response (on that conveyed positive emotions Twitter) to corporate statements issued by five companies—Airbnb, Amazon, Apple, Netflix, and Pepsi—on the recent 3.4% events around police brutality and the Black Lives Matter movement. We picked these brands for the analysis because each had a substantial volume 3.3% of conversations that we could analyze before and after its response. We observed that most of these 3.2% brands issued corporate responses that affected public sentiment positively (i.e., they increased positive emotions). We did so by measuring the change 3.1% Jan Feb Mar Apr May in the percentage of words reflecting positive emotions in tweets about a

ILLUSTRATION BY JUDITH RUDD BY ILLUSTRATION Chintagunta et al., 2020 company between the week prior to

62 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 63 Twitter reaction to corporate statements following the George Floyd killing the statement and the week after its policy, but the coffee chain also the statement. We measured this Given the perils said it would make 250,000 Black Companies aimed to connect with customers through a combination of social-justice statements in support change relative to a control sample Lives Matter shirts for baristas who of Black Lives Matter and announcements of concrete action, such as donations. of getting the Increase of 100,000 random tweets per day wanted them. Change in the share of postive words in Twitter conversations Change in the share in positive during the same duration to make response wrong, Crafting the right corporate about the company, relative to levels before its first statement of negative words words sure the results reflected the impact and the difficulty response, one that includes not just of the corporate responses and sentiment but also concrete actions Airbnb +780% not a change in overall sentiment of getting it right, and initiatives, is a balancing act. The on Twitter. delicateness of this task is further ex- However, just issuing a statement it would be wise acerbated by increasingly divergent May 25, 2020 June Drop in June June was not enough. The positive impacts political views. For example, a Pew Floyd killing 1 negative words 8 15 for companies noted earlier came after statements in Research Center study conducted which companies promised concrete to develop a in late April finds that 82 percent of actions and investments for the Democrats viewed the coronavirus −13% cause. For most of the companies we nuanced strategy. outbreak as a threat to US health, Via Twitter, the company announces $500,000 in donations to the NAACP and the Black Lives Matter analyzed, such a concrete response but just 43 percent of Republicans Global Network Foundation, as well as an offer to match employee donations. (June 2) was the second or third statement viewed it as such. they issued. Most started by issuing Given the perils of getting the a “words only” statement of support response wrong, and the difficulty Amazon +18% for the cause; these were usually not in getting it right, it would be wise Increase in negative words well received by customers, and many for companies to develop a nuanced of them led to an increase in negative strategy and an associated playbook +77% sentiment. Only when the companies to guide them in creating thoughtful pledged actual investments did the responses to social issues. Naturally, +5% negative sentiment reduce. the right strategy won’t be universal: A second statement includes an announcement of $10 million in Furthermore, the experience of it will incorporate the company The company issues a donations to various groups “working to bring about social justice Netflix suggests that just pledging any culture and ethos, the values and statement via Twitter. (May 31) and improve the lives of Black and African Americans.” (June 3) amount of money is unlikely to be beliefs of the company’s customers enough in the eyes of the public, or and employees, the perceived at least in the eyes of Twitter users. seriousness of the topic, and the Apple +27% The first two statements issued by magnitude of the response that Netflix were words only and led to a customers are likely to expect. The decrease in both positive and negative nature of the business will also have sentiment—that is, they did not evoke implications, as retail and consum- +24% −15% much emotion. However, in its third er-facing businesses are more likely statement, Netflix pledged $5 million, to be subject to heightened scrutiny The company issues a statement on its and this led to a 61 percent increase in by the public, whereas other busi- website mentioning donations it is making The company announces an update to its Siri software with new answers negative sentiment (and a 31 percent nesses would need to be concerned to relevant organizations. (June 4) to the questions “Do Black lives matter?” and “Do all lives matter?” (June 9) increase in positive sentiment). primarily about employees and other Only when Netflix issued a fourth internal stakeholders. Netflix +25% statement pledging $120 million did The specifics of an appropriate the negative sentiment go back to response to social crises may vary normal (while the positive sentiment considerably across businesses, but remained at the high level). the prudence of planning for such −44% +53% Airbnb was the only company in responses does not. Customer (and −12% +2% our analysis that pledged money in employee) expectations of corporate its first statement, and thus saw a purpose and social response will positive impact right away. A disclaim- likely only increase. And as 2020 has The company A second Twitter statement The company announces $5 million in donations to organizations er here is that these are short-term shown us, the next crisis is always issues a announces a curated collection supporting Black creators, youth, and businesses. (June 15) impacts; longer-term impacts might around the corner.—CBR statement of content oriented around vary depending on a number of The company announces CEO Reed Hastings’s planned donation via Twitter. “the complex and layered stories other factors. Written with Yogesh Kansal and of $120 million to the United Negro College Fund and two historically (May 30) about racial injustice and The companies in our analysis Pradeep Pachigolla. Pradeep K. Black schools, Spelman College and Morehouse College. (June 17) Blackness in America.” (June 10) are far from alone in having had to Chintagunta is the Joseph T. and issue additional statements, publicly Bernice S. Lewis Distinguished Service Pepsi +0% apologize, or change their stance Professor of Marketing at Chicago after customers felt their response Booth. Yogesh Kansal is a consultant at was inadequate or inappropriate. Boston Consulting Group and a recent +31% +25% One example is Starbucks, which graduate of Chicago Booth’s MBA had to reverse its policy prohibiting Program. Pradeep Pachigolla is a PhD The company issues a statement A second statement announces “a more than $400 million employees from wearing Black Lives student at Cornell. via LinkedIn. (June 1) set of initiatives over five years to lift up Black communities Matter–related clothing in stores after Go to Review.ChicagoBooth.edu to see a complete list of Chintagunta et al., 2020 and increase Black representation at PepsiCo.” (June 16) a public outcry. Not only did it change citations for research mentioned in this essay.

64 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 65 THE BIG QUESTION

This highlights the difficult calculation “Those who came Uzzell: I saw many that I thought missed HOW SHOULD that companies are making when the mark. I found a lot of CEOs, when they they’re thinking about this. What do you out with authentic, developed their website, had sustainability tell companies? meaningful and diversity and inclusion, like these COMPANIES standards you need to have. But when they Nyambuya: I tell companies the same statements, I was would look at their gallery view, they would thing that I tell my students: you have to not see it. And they really had to ask the RESPOND TO BLACK go inward before you start pushing out not surprised. question: Is diversity and inclusion a real messages. And part of that is in treating this thing or just one of the boxes you check kind of messaging like a crisis. We are in a Those who when you have a big company? crisis moment. Where are you in the crisis? came up with But for brands such as ours, where LIVES MATTER? What role have you played in the crisis, and both the employees and the consumers what role do you want to play? Because performative don’t believe it’s just owned by a public Chicago Booth’s Pradeep K. Chintagunta, Virgil’s Chipo knowing and being comfortable with all statements, I was company and believe it’s their brand too, Nyambuya, and Converse’s Scott Uzzell discuss of that determines and dictates whether if you don’t do what’s right by the brand, you put out a statement that gets a positive not surprised.” they will let you know. corporate responses to racial injustice. or negative reaction. We’re certainly at a I’ll never forget talking to one of our point of the nonapology apology, the “I’m — CHIPO NYAMBUYA creatives in Europe around this time, and Pradeep K. Chintagunta To control for other things that might sorry if you were offended.” That kind of he made the statement, “I want credibility. Joseph T. and Bernice S. Lewis have been happening on Twitter at messaging is not going to fly. say that the audio and the video match? And credibility comes from walking the Distinguished Service Professor the same time, we also looked at the We are in a social, political, and And we were having real conversations walk. It’s not the moments of George of Marketing at Chicago Booth changes across 100,000 random tweets economic moment. Every company needs around: What do we aspire to be? What Floyd—you’re doing it when no one’s in the same time period. We looked at to figure out where they’re going to stand does the brand stand for from the stand- looking, so that when these moments Chipo Nyambuya one week before the first statement and and be counted, because people are point of inclusion? And do we match that? happen, you don’t have to institute new Founder and principal of Virgil and then one week after the last statement. watching. Your customers, investors, and And what we came away with was that programs because you’re already doing the director of externships at the Loyola And generally what we found was that shareholders are watching. Your investors our aspirations and what we put out there work.” And that really struck me. It’s the University Chicago School of Law. the positive emotionality for all the firms are watching. All of your stakeholders are in the public domain said all the right hundred decisions you make every day to increased after the statements. watching, so you have to balance that as things, but inside the building we still had make sure you’re driving an inclusive and Scott Uzzell However, when firms just put you look at your brand. You have to be very a lot of work to do. Externally, we made a equitable environment. That’s what’s hard President and CEO at Converse out a “words only” statement, the clear on where you are, and where all of lot of strong commitments. We quickly said to do, and that’s what you have to do every negative emotionality associated with your stakeholders are as well. that we stand with the Black community day to live the vision and role model it. the tweets about those companies and are going to make sure that we hire he Black Lives Matter actually increased. Netflix put out four Uzzell: It’s interesting for me, being both even more Black creatives, designers and Nyambuya: Those who came out with movement has created a statements, but the first statement Black and a CEO. I never really thought athletes and businesses. We’re going to authentic, meaningful statements, I was not T strong demand for compa- was essentially a generic Black Lives about these things intersecting, but they use our platform to amplify Black youth surprised. Those who came up with perfor- nies to respond. So how have Matter statement, which did not make really did right after the death of George voices around the world. We’re going to put mative statements, I was not surprised. companies responded, and how much of a difference. Next, there was a Floyd. My head was something I brought funds in the community to make sure that Top of the list [for authentic statements], should they respond? statement about how they were going to to work; my heart and my gut I left at we’re enabling them to tell their story. And Ben & Jerry’s, because it’s what they do. To curate movies related to racial injustice home. But at this moment, all of them had with Nike and Jordan, we put $40 million Scott’s point, and as I was saying earlier, you Chintagunta: Two colleagues and I in America on the Netflix platform. to come together. My 23 direct reports directed at the Black community. But we essentially have to turn inward first before looked at the emotionality of words Third, they announced a $5 million around the world all had energy to do knew that you can’t just donate to an HBCU you start pushing out anything. So with included or used in tweets by consum- investment, and that actually increased something after the death of George Floyd [historically black college or university] or a company such as Ben & Jerry’s, all they ers and other folks about companies. By the negative emotionality quite a bit. and wanted to take a stand in some way. give to a great nonprofit without taking the did was wrap around a statement of the emotionality, what we mean is whether And it’s only when they decided to put And I was quickly thrust into a moment real actions to make sure your culture is moment, contextualize it, and push out the these words were positive (such as the in a substantial amount of money, $120 where I’m trying to process all that’s going inclusive and representative of what you work that they’re already doing. term happy) or negative (such as sad). million, that the emotionality changed on for myself, my family, and my kids, want to be. What I find is that a lot of the companies We looked at the period following the and it became much more positive for and just deal with it, but then also lead who did make the meaningful statements tragic death of George Floyd, when com- Netflix. an organization of 4,000 people who are One theme that’s running through all and commitments were doing those things panies put out a bunch of statements, So it’s not enough just to put out looking for direction. of your answers is the issue of authen- in the background, but they were trying and some made donations or took a statements, but it also has to be followed I will never forget that Monday morning. ticity. When you look at how companies to navigate politically, “OK, how is this variety of other actions. We looked at or backed up by some amount of I’m saying to myself that, really, I have two responded, did you see certain cam- going to look if we promote this?” And so, five companies spanning a wide range of commitment and investment to the ways to move forward. Internally, before paigns that were particularly effective this moment essentially afforded them the products and services: Amazon, Apple, cause as well. (For more, see “When we start talking about social justice, how or campaigns that you thought missed opportunity to come out, and to come out Airbnb, Netflix, and Pepsi. commitment speaks volumes,” page 62.) are we doing as a company? Can we really the mark? more boldly.

66 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 67 THE BIG QUESTION

Chintagunta: In terms of marketing, I also “If you say you’re that we are doing it for commercial think that it’s important to look at products. reasons. We just don’t do it. It’s not worth And product names. [Beso de] Negra, inclusive, and it. So spend a lot of time making sure you which is a Nestlé candy—they’re planning understand: What is the DNA of the brand? to change the name. I come originally from you’re for all of How are you connected to your consumer? India, and we have a product there called your employees, And make sure, truly, you can help them Fair & Lovely [recently rebranded as Glow & amplify their voice. Lovely], and you can guess what that prod- when issues come uct is intended to do. There’s a toothpaste Nyambuya: My approach to CSR [corpo- that Colgate has in Asia called Darlie, which around related to rate social responsibility] advising demands To abandon any hint of exaggeration, originally was called Darkie. So you monitor a lot from people. It’s a constant self-assess- IN-HOUSE strategic omission, or any other tactic that social justice, you as ETHICIST your product. And you monitor your prices. ment, self-reflection, as an organization. might be classified as vaguely deceptive a company have to JOHN PAUL Is your pricing discriminatory in any way? Do you know who your stakeholders are? ROLLERT could be said to be consistent with the Then advertising. Unilever recently said take a stand.” Whom are you serving? What is your image? principle of an affirmative fidelity to the that they were going to change the jingles Then that question of whether you should truth. A commitment to this principle, we on ice cream carts because the jingle has — SCOTT UZZELL or shouldn’t do something comes way might say, entails precision in assertion, been repurposed with racially charged ahead as opposed to in a moment of crisis. transparency in motive and means, and lyrics. And then, with respect to channels, People who haven’t prepared, they’re Is lying part a fervor for telling the truth, the whole what is the access that you’re providing to about who the consumers and employees the ones reaching out for implicit-bias truth, and nothing but the truth. the different customers? are, it can feel really confident in coming training and things like that. And the first of business? Whatever one might make of it, few, So thinking about it systematically, in out and making an authentic statement and question I ask them is, where do you want I imagine, are willing to dismiss this terms of monitoring the four Ps—product, backing it up. to go? Do you want to be performative, There’s a universe of commitment outright. But I also suspect price, place where a product is marketed, And if companies don’t have repre- or do you want to be organizationally ambiguity between that for most people today, an affirmative and promotion. Then you can look at sentation to help write the message, the transformative? The answer—and of course outright fraud and the fidelity to the truth seems a better fit for various media such as Twitter, Facebook, message falls on deaf ears. It doesn’t even the questions that go along with it—deter- Boy Scouts than business executives. whatever you want. feel authentic. You can see it in the words. mines which way to go. If it’s performative, whole truth Take, for instance, the conventional It could be Black Lives Matter, or it could be they go to their stakeholders and say, wisdom of another authority on commer- What are the risks of shifting the wrong around gay, transgender [rights], or a host “Fundamentally, we’re bummed about this ow’s your day going?” “What do you cial conduct, writing decades after Veblen: way? What are campaigns that could go of issues. The Me Too movement, all of it. moment, but we’re still here to help our think of this dress?” “Would you like wrong? We’ve touched on inauthentic- It’s really around: Do you stand for all of customers wherever they may be.” H to read my poems?” These are all Most executives from time to time are ity, not going deep enough. Are there your employees or do you stand for a few? So you can All Lives Matter it or you questions that invite dishonesty, almost compelled, in the interests of their any other risks that companies need to We espouse every day, when everything’s can Black Lives Matter it, but it will though certainly not of a rank or abject companies or themselves, to practice take into consideration as they do this? great, that we’re for all of our employees. require you to ask, “Where do we want sort. On the contrary, we might call the some form of deception when negotiating But in moments like this, employees need to be?” Then look at your organization, insincere responses they elicit “little with customers, dealers, labor unions, Nyambuya: I think the big risk, particu- to know where you stand as a company. particularly the leadership, who can say, white lies,” implying not only that the lies government officials, or even other larly when you’re talking about consumer The majority of businesses spend most “OK, here’s the strategy. Here are the themselves are trivial, but that they are departments of their companies. By goods companies, is some have gotten of their time trying not to get into social goals we’re going to try and reach, and largely blameless, even beneficial. They conscious misstatements, concealment fundamentally lazy. They’ve largely ignored issues. I just think that, 20 years ago, busi- this is how we’re going to try and reach limit the friction of social life, and keep of pertinent facts, or exaggeration—in the market that is outside of whatever study nesses were like, “I sell stuff, and when I them.” And then you can go out and make things moving smoothly. short, by bluffing—they seek to persuade they’ve done. And the risk they run is in leave at 5 o’clock, then I go do whatever my your statement. Business executives find far more occa- others to agree with them. I think it is turning off a market that they’ve already politics are.” But the consumer today, the sion for lying, or so it seemed to Thorstein fair to say that if the individual executive neglected—by not saying anything, not employee base today, they fuse it together. How can employees drive those difficult Veblen. The most consequential economist refuses to bluff from time to time—if he doing anything, or being too inauthentic It’s all one cocktail. And I think CEOs who conversations to become organization- at the University of Chicago at the turn of feels obligated to tell the truth, the whole with their messaging, with their outreach, don’t get that are missing the boat. ally transformative? the 20th century, Veblen regarded lying as truth, and nothing but the truth—he is or with their silence. We’re very clear on an essential cultural practice of American ignoring opportunities permitted under the buying power of African Americans How much of what we’ve discussed Nyambuya: It’s much easier at startups capitalism, a lubricant, if you will, for what the rules and is at a heavy disadvantage in this country and yet we still play to the about BLM applies to other social because there’s nothing to undo. It’s about he called the “arts of business.” That hardly in his business dealings. 18- to 65-year-old white male, or where the issues? Are there certain things that defining your identity, because that will made the practice blameless to Veblen, income is. But fundamentally, if you don’t don’t translate? inform how you pay your employees much less beneficial. “[T]he arts of business This testimony belongs to Albert Carr, reach out, you run the risk of turning off an and how you treat them and your supply are the arts of bargaining, effrontery, an economist and journeyman consultant entire market that can really be significant Uzzell: There is probably something that chain—all of those issues across the board salesmanship, [and] make believe,” he whose eccentric collection of clients to your bottom line. doesn’t, but the list is long about what does. that touch on social justice broadly. When wrote in his final book, Absentee Ownership included paper mills and American If you say you’re inclusive, and you’re for you’re talking about going into a larger and Business Enterprise in Recent Times, presidents. He was also a promiscuous Uzzell: I’ve seen a number of different all of your employees, when issues come multinational, it’s about relationships and “and are directed to the gain of the business wordsmith, whose works of business CEO forums and have watched CEOs who around related to social justice, you as a mentorships, so that you can have that man at the cost of the community, at large history and biography feature salacious spend a lot of time trying to figure out how company have to take a stand. At Converse, space to have those conversations. It takes and in detail.” titles—John D. Rockefeller’s Secret Weapon, to say something, but to make sure nobody our employees expect it. I’ve never worked time. As you’re interviewing to go into Set aside for now the question of Juggernaut: The Path of Dictatorship—that is offended, and that’s a tall task. They’re anywhere before where your activism these spaces, make sure that you’re not whether the everyday deceptions familiar seem better suited to his occasional forays very late to respond [to something when through the brand and through the voice of only being interviewed but that you are to marketing, sales, negotiations, and into pulp fiction. it happens]. And when they actually do the consumer is what’s expected. also interviewing, so that you know what other elements of business come “at In January 1968, just a few years before respond, weeks after they should have, I will tell you also, we try not to profit the culture is, and know your ability to the cost of the community.” Consider, Carr’s death, Harvard Business Review they haven’t said anything. When a brand from these moments. We will walk away navigate and make change in ways that are instead, what it might be to practice published “Is Business Bluffing Ethical?” has a DNA of authenticity and is really clear from anything if it could be misconstrued meaningful to you.—CBR business without them. a lengthy essay that would become Carr’s

68 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 69 most durable contribution to public worse of poker on that account. And due to our expectation/perception that No one is eager convinced that some duplicitous act is discourse. Importantly for Carr, the no one should think any the worse this is all in the service of a higher ideal, required in furtherance of some greater term bluffing is a catchall for a wide of the game of business because its the maximization of economic value via to provide a full- good, say, “the maximization of econom- variety of commercial conduct that is standards of right and wrong differ [the] maximization of self-interest.” throated defense ic value,” there is nothing preventing unseemly and venial if not necessarily from the prevailing traditions of Such explicit toggling between it as a matter of principle. The law may felonious. Cold-blooded cost cutting, morality in our society. these two types of claims is something of lying, but most stand in their way, but not their own lobbying practices that corrupt the Carr’s essay avoids. It provides a candid moral commitments. common good, price gouging, industrial Carr’s analogy is a warrant for a assessment of business culture and a of us are willing to The final thing to note about a espionage, self-dealing, anticompetitive certain level of acceptable deception compelling analogy to make sense of tolerate some level moral sanction for deceptive practices practices, and planned obsolescence all in business, and I was curious to its relationship to the broader world in business is that, rather than the rare make the list, in addition, of course, to know what present-day business around it, but as a moral argument of dishonesty when exception one isn’t entirely proud of, it the wide variety of deceptions involved professionals made of it, so I emailed for deceptive behavior, in the end, the treats duplicity as an essential part of in everyday business. a few of the students who have taken essay ultimately relies on the debauched it serves a clear business. If business and poker do indeed Assessing the integrity of Carr’s my Business Ethics class at Booth to see logic of the neighborhood drug dealer: social purpose. resemble each other, it is because, rather argument is something akin to standing if they would share their impressions. “C’mon, kid—everybody’s doing it.” than a defect of the game, deception under a circus tent after a torrential On the whole, most of them signaled Now, to be clear, the notion that hon- is necessary for it to function. Lying, storm. The view is capacious and significant discomfort with the width of esty can sometimes be set aside in favor according to this view, is as integral to colorful, but the sagging is evident, Carr’s net, but they didn’t object to him of other moral commitments is hardly the practice of business as violence is to the stakes untethered, and the overall casting it. “As I think about whether radical. Most philosophers agree that, armed robbery. impression it makes is of something lying in business is ethical, I found if the proverbial Nazi comes knocking This is essentially Albert Carr’s not entirely stable. It’s the type of myself coming back to the answer that at the door, the person who answers it claim, though he would surely reject popular work prim-faced PhDs routinely I frequently came to in class,” one has no obligation to reveal the Jewish the comparison. Not Thorstein Veblen, disregard as the specious currency of student confessed: “It depends.” family hiding in the attic. A commitment however. For him, duplicity is as common sense, which is one reason it If some amount of duplicity is simply to sincerity shouldn’t be a suicide pact. integral to business, and therein to is a little surprising the essay became a staple of the business profession, To contend in every circumstance that capitalism, as it is for Carr, but whereas a touchstone for an ongoing debate according to my students, two species there is nothing more important than for Carr the moral upshot of such in scholarly journals about the moral of deception seem especially prevalent. telling the truth is to confuse rigid activity is so obviously beneficial that permissibility of lying in business. If The first is an inclination to exaggerate, consistency with moral clarity. we should regard the deceptions that these papers are assembled from the especially when it comes to closing a The troubling example above is support it with a wink and a nod, for sturdier timber of academic argument, deal. When pitching investment oppor- a reminder that so much of ethics is Veblen, the results for the community it’s notable that they never really tunities, one student told me, people not merely an exercise in choosing are no laughing matter. challenge the principal observation “feel entitled to exaggerate because the principles that guide us; it’s also a No one is eager to provide a and tenable opinion of Carr’s essay: disclaimers like ‘Past performance is matter of determining what we should full-throated defense of lying, but most “All sensible businessmen prefer to be not a guarantor of future performance’ do whenever they conflict. To present of us are willing to tolerate some level truthful, but they seldom feel inclined are always there.” This conviction, “the maximization of economic value” of dishonesty when it serves a clear to tell the whole truth.” Instead, these she noted, was fairly common among as a moral defense in favor of some level social purpose. If I tell you I’m feeling scholarly works merely gussy up the her fellow students. “Exaggeration is of deception is merely to contend that great today even though I’m slightly sentiment so that it becomes a sanction understood as particularly important this principle can trump, in business at exhausted, it’s because we don’t like to for anything other than lying. in [venture capital] and the startup least, an affirmative fidelity to the truth. burden each other with trivial cares. If In this respect, the contrast with Carr world,” she explained, “where people Now, whatever you might make of you warmly approve of my dress even is refreshing. He never wavers from really are investing huge amounts of this moral hierarchy, a few words should though orange isn’t exactly my color, it is what, for him, is essentially a common- money and time in unproven ideas.” be said about its practical consequences. because embarrassment requires a better place: to be successful in business, one The inclination to exaggerate is The first is that, as opposed to the reason than slight predilection. And if I needs a liberal approach to truth telling. made more hazardous by a second cate- harrowing episode above, when we say that I would love to read your poems The spirit of that approach is well gory of acceptable deception: careful deceive others in business, by and large, even though I cringe at the thought of captured by the title of the book from omission. As this second student it is not to protect another person or confronting your tenderest sentiments, which Carr adapted his essay, Business described it in her email, the real “dan- even (as in the case of the little white lies inchoate and barely expressed, it is as a Game. Rather than a lawless realm ger” in dealmaking is when the man on we tell in polite company) to spare her almost certainly because I have struggled where all is permitted, business is a the make exaggerates the upside of a feelings. Instead, it is to prevail upon to share mine with others and am contest of sorts with rules of its own venture and potential clients do not ask another for our own benefit. We lie grateful for the care they showed them. beyond those of the public square. The the right types of questions. “There is precisely because telling the truth might The social purpose of business competition Carr prefers by analogy is no technical lying involved,” she said, undermine such intentions. deception is less clear. If Carr is right, if poker. He writes: In business, the but divulging the whole truth would The second thing to note is that, capitalism requires a casual relationship certainly put the deal at risk. unlike parlor games, in business the with the truth, it may not say anything Poker’s own brand of ethics is different lines between So if for my Booth students a certain lines between acceptable deception particularly becoming about the profes- from the ethical ideals of civilized acceptable degree of deception is de rigueur and appalling dishonesty aren’t exactly sion of business. But it says something human relationships. The game in business dealings, how do they defined. The poker player knows that uglier, and far more fearful, if it also calls for distrust of the other fellow. deception square their own participation in such he can bluff his way to a big pot, but if makes for a game where the public’s the It ignores the claim of friendship. duplicity? “I think our acceptance is he’s found with the ace up his sleeve, real loser.—CBR Cunning deception and concealment and appalling both a function of how widespread he’s getting tossed out of the casino. of one’s strength and intentions, not dishonesty aren’t (descriptive claim) it is,” a third student The same can’t be said for business John Paul Rollert is adjunct assistant kindness and openheartedness, are explained to me, “and also because it’s professionals—not, at least, with professor of behavioral science at vital in poker. No one thinks any the exactly defined. seen as legitimate (normative claim) any precision. Moreover, if they are Chicago Booth.

70 Chicago Booth Review Winter 2020/21 Winter 2020/21 Chicago Booth Review 71 THE IGM PANEL

Statement A: Statement B: Statement C: SHOULD THE The ECB should aim The ECB should The objectives set to achieve an inflation take account of for the ECB by treaty ECB PRIORITIZE rate that averages 2 the environmental should make maximum percent over time. implications of its sustainable employment JOBS AND THE policy decisions. of equal importance as Jan Pieter Krahnen, Goethe price stability. ENVIRONMENT? University Frankfurt Pol Antràs, Harvard “Since in monetary policy “It seems like there should Jordi Galí, Barcelona Graduate credibility is king, the ECB be other entities that can School of Economics In the coming year, the European should not change but more directly take charge of Central Bank will conclude a broad “Even though the current rather hold onto its environmental regulation.” review of its policy strategy to emphasis on the inflation inherited objective.” Response: Disagree determine if and how it should change objective as a ‘medium term’ Response: Disagree its goals and priorities. Currently, objective already allows for that.” Christopher Pissarides, the ECB’s primary objective is price Response: Agree Marco Pagano, University London School of Economics stability—managing inflation—as of Naples Federico II and Political Science Christian Leuz, Chicago Booth opposed to the US Federal Reserve’s dual mandate of pursuing price “Why 2 percent rather than 1 “A no-brainer. We need to “While I can see arguments for stability and maximum employment. percent or 3 percent? Where save the planet; everyone the Fed or Bank of England, it Should the ECB’s goals be revised is the scientific background should take into account would be much harder for the to make maximum sustainable for this particular number? the environmental ECB with so many European employment an aim on par with price I suspect NONE.” implications of their countries. Employment is stability? Should the ECB factor the Response: Uncertain decisions, even the mighty.” better addressed with fiscal environment into its decisions? Response: Strongly agree policies.” And what should price stability mean, John Van Reenen, MIT Response: Disagree in terms of a target rate for inflation? “There is a need for symmetry Antoinette Schoar, MIT To investigate these questions, as low inflation is as bad “The ECB does not have John Vickers, Oxford Chicago Booth’s Initiative on as high. There is a good effective tools to achieve “Monetary policy can best Global Markets surveyed its argument for targeting a environmental goals. contribute to maximum European Economic Experts Panel. higher rate like 3 percent or Policy makers, consumers, sustainable employment by The breadth of opinion expressed 4 percent to avoid the zero and voters need to take maintaining price stability, so for each question may underscore lower bound.” responsibility for this.” that should be primary.” the challenges the ECB faces as it Response: Agree Response: Uncertain Response: Disagree considers changes to its policy focus. Strongly 11% 15% 16% agree

Agree 46% 37% 27%

Uncertain 21% 11% 27%

About the IGM Economic Experts Panels See more online Disagree 18% 31% 27% To assess the extent to which economists agree or disagree on major public-policy issues, All responses to these Booth’s Initiative on Global Markets has assembled and regularly polls two diverse panels of polls can be seen at Strongly economists, all senior faculty at the most elite research universities in the United States and 4% 6% 2% igmchicago.org. Europe. The panels include Nobel laureates and John Bates Clark medalists, among others. disagree Polls are emailed individually to the panel members, and panelists may consult whatever resources they like before answering. Members of the public are free to suggest questions. Percentages weighted by confidence ratings panelists assigned to their own responses

72 Chicago Booth Review Winter 2020/21 PHOTO ILLUSTRATION BY GLEN GYSSLER Winter 2020/21 Chicago Booth Review 73 December 2020 to March 2021 How parents view investing in their kids’ future mong families with more than one child, what factors do parents prioritize when investing time and money in education? A team A of researchers including Chicago Booth’s Rebecca Dizon-Ross finds that while parents want to maximize the return on this invest- ment, they also care very much about allocating their resources equally among their children. In an experiment with 300 families, children took a test and earned a monetary reward determined on the basis of their scores. Beforehand, the researchers asked parents See you online to allocate 10 tickets to two of their children in a lottery where only one child in the family would win an hour of tutoring. Given the opportunity to favor one child—whether helping one who was further behind academically or boosting one who was already excelling— the parents overall showed a strong aversion to allocating tickets unequally. To learn more about this research, turn to page 17. While COVID-19 has changed the location of many events, conferences, and programs, Chicago Booth and the University of Chicago continue to sponsor many opportunities for inquiry and to gain insights. The events below will all be held virtually, and more information can be found at the sites listed.

DECEMBER 7–18 JANUARY 2021 THE EXECUTIVE FINANCE PROGRAM ECONOMIC OUTLOOK ChicagoBooth.edu/efp ChicagoBooth.edu/eo Deepen your skills and gain an understanding of current Hear from Booth’s renowned faculty members as they trends in capital markets and corporate finance to confront the future, evaluate emerging trends, and increase value and improve performance in your organi- share key insights that help reframe our understand- zation. This program will be held live online. ing of the world to come. See website for event dates for Chicago, London, and Hong Kong. DECEMBER 8–17 FEBRUARY 2–MARCH 5, 2021 STRATEGIC THINKING FOR TURBULENT TIMES HIGH-STAKES DECISIONS: MANAGE RISK AND ChicagoBooth.edu/sttt REPUTATION Gain the foundational skills in strategic thinking to ChicagoBooth.edu/hsd navigate your organization through turbulent times. Acquire frameworks to anticipate threats, innovate, and Learn how to develop a proactive risk-and-reward deliberately explore new opportunities. This program will management strategy for your organization. This be held live online. program will be held live online.

DECEMBER 12 FEBRUARY 24, 2021 ARE YOU READY FOR 2021? A MEETING OF THE MINDS ChicagoBooth.edu/exec-events ChicagoBooth.edu/meeting-of-the-minds Join this Asia-focused Executive MBA Info Session Watch University of Chicago’s Dali L. Yang and Webinar to learn more about Booth and hear from a Booth’s Austan D. Goolsbee as they explore how current student or graduate about the program’s impact commonalities and differences in political science on his or her career and personal growth. See website for and economics can lead to a richer grasp of the information on other sessions as well. economic human being.

Since 1898, the University of Chicago Booth School of Business has produced ideas and leaders that shape the world of business. Our rigorous, discipline-based approach to business education transforms our students into confident, effective, respected business leaders prepared to face the toughest challenges. Visit ChicagoBooth.edu/programs for more information about our Full-Time MBA, Evening MBA, Weekend MBA, and Executive MBA Programs, our PhD Program, and our Executive Education courses. Chicago Booth has campuses in Chicago, London, and Hong Kong. 74 Chicago Booth Review Winter 2020/21 ILLUSTRATION BY PETER ARKLE