RESEARCH-DRIVEN INSIGHTS ON BUSINESS, POLICY, AND MARKETS SPRING 2021 Plus: What should the US do about student debt? Lower fines could lead to higher revenues Law and order and data Will algorithms fix what’s wrong with American justice, or make things worse? “People are going to be returning to jobs, but they’re going to be different kinds of jobs and different kinds of employers.” Page 62 2 Chicago Booth Review Spring 2021 285697_1-29.indd 2 2/11/21 2:37 PM MORE ACCURATE he US prison system is the biggest in The answer depends not only on T the world. At 655 prisoners for every coders, but principally on the key 100,000 people living in the country, decision makers in cities, states, police CRIMINAL JUSTICE the United States leads the world in both departments, and other agencies. They total number of people in prison and will both select what technologies are prison population per capita, according used, and create the framework in to World Prison Brief’s 2018 World Prison which they operate. “The biggest gains Population List. in public governance that we’ve had in The system is also incredibly expen- any country come from transparency sive—one estimate puts the total cost of and accountability, and we simply incarcerations at $1 trillion annually. And do not have that” when it comes to the racial composition of the US prison public-sector use of artificial intelli- population is skewed relative to the gence, says Chicago Booth’s Sendhil general population: Black people make Mullainathan. up 12 percent of the adult population but Elsewhere in this issue, we catalog how one-third of all prisoners. And the high researchers are analyzing other topics of financial and social cost of the current sys- great concern to policy makers, such as tem is failing to produce good results. The the effects of COVID-19 lockdowns (pages US ranks 26th of 40 countries in the safety 19 and 28), the $1.6 trillion US student-loan category of the Organisation for Economic crisis (pages 7 and 66), and bankruptcy re- Co-operation and Development’s Better form (page 12). We also highlight research Life Index, which factors in both homicide that finds measurable evidence of how rates and people’s likelihood of reporting political uncertainty in Hong Kong hurt they feel safe walking alone at night. asset prices (page 14). And in a column, There is no shortage of proposals Booth’s Jean-Pierre Dubé suggests that a aimed at improving the situation. policy at work in Switzerland, of assessing President Joe Biden’s governing plan fines on the basis of income, should be includes pushing a reform bill, as well as more widely adopted (page 49). taking “bold action to reduce our prison As always, please do let us know population, create a more just society, what you think of this issue, as well as and make our communities safer.” the articles, charts, and videos on our New technologies may help shape website. Tweet us, comment on our efforts at reform. As our cover story Facebook or LinkedIn pages, or send us explains (page 30), machine learning an email. can be used to analyze huge masses of data and make predictions relevant to Hal Weitzman criminal outcomes. It is already being Executive director, Intellectual Capital used by many police departments for Editor-in-chief, Chicago Booth Review patrolling and crime solving, and judges [email protected] are using it to guide their decisions. In theory, it could be an important piece Emily Lambert of a more efficient and equitable justice Director, Intellectual Capital system. But could there be a trade-off, Editor, Chicago Booth Review even the germ of another problem? [email protected] Editor-in-chief Multimedia Lucy Hewett Brian Wallheimer Hal Weitzman producer Rose Jacobs Alice G. Walton Editor Josh Stunkel John Kenzie Faculty advisory Emily Lambert Video producer Maggie Li committee Deputy editor Ray Zane Michael Maiello John R. Birge Jeff Cockrell Contributors Gary Neill Lubos Pastor Data editor Peter Arkle Brett Nelson Jane L. Risen Chuck Burke Noma Bar Dan Page Social media editor Eric Butterman Michael Rapoport Blake Goble Michael Byers Bob Simison Copy chief Francesco Ciccolella Vanessa Sumo Molly Heim Áine Doris Sebastien Thibault Designer Chris Gash Meena Thiruvengadam Nicole Dudka Glen Gyssler Andrea Ucini Review.ChicagoBooth.edu COVER ILLUSTRATION BY NOMA BAR Spring 2021 Chicago Booth Review 1 285697_1-29.indd 1 2/1/21 7:01 AM DEPARTMENTS 1 Editors’ letter 4 Feedback 68 The Equation DATAPOINTS COVERSTORY 7 Canceling all student 18 Active-fund managers 30 LAW AND ORDER AND DATA debt mostly helps didn’t shine during the high earners COVID-19 crisis Will algorithms fix what’s 9 Government policy 19 Local lockdowns may help created the student- contain COVID-19 wrong with American loan crisis 19 Don’t kill a company to justice, or make things 10 Inventors are eyeing collect a debt your home office 20 Sharing experiences, even worse? 11 Without commutes, from afar, can bring By Jeff Cockrell how are Americans people closer spending their 20 How people ‘mentally extra time? launder’ unethical income 12 Matthew Notowidigdo: 22 How online retailers can Revisit bankruptcy fulfill orders better FEATURE reform 22 Do investors view stocks 13 For better output, turn as insurance? 42 When green investments pay off down the volume 23 Why exclusivity works—in In building a portfolio, sustainability is no longer 14 Political uncertainty marketing and a luxury good. But it’s not a slam dunk either. hurt Hong Kong policy making By Emily Lambert property values 24 Who is driving 15 Why COVID-19 has stock prices? widened the gender gap 26 Central bankers misjudge 15 COVID-19 stimulus forward guidance . checks spurred debt 27 . and their economists payment and saving may be overstating QE’s 16 How to spot an effectiveness overconfident CEO 27 Is the US becoming 17 Why auditors hire a plutocracy? graduates of local 28 India’s economic recovery colleges from its COVID-19 lockdown Page 1 7 30 42 Featured Faculty Constantine Yannelis, assistant Yueran Ma, assistant professor of professor of finance and an FMC Faculty finance and a Liew Family Junior Faculty Scholar, conducts research in finance Fellow, conducts empirical studies at the and applied microeconomics. This issue intersection of finance and macroeconom- features some of his most recent work on ics, exploring topics such as the effects student loans, which he says became an of interest rates on financial markets, area of interest when he saw “a dearth the macroeconomic implications of debt of economic analysis grounded in both markets, and the effects of financial empiricism and theory.” (Page 7) frictions. (Page 19) 2 Chicago Booth Review Spring 2021 285697_1-29.indd 2 2/9/21 4:28 PM FOOTNOTES 49 Lower fines could lead to higher revenues By Jean-Pierre Dubé 52 Entrepreneurs, remember the power of a smile By Waverly Deutsch 57 Don’t lose sight of suffering By John Paul Rollert 60 The COVID-19 trolley problem By John H. Cochrane 62 How has the pandemic changed the labor market? The Big Question 66 What should the US do about student debt? The IGM Panel 49 68 Lubos Pastor, the Charles P. McQuaid Jean-Pierre Dubé, the Sigmund E. Professor of Finance and the Robert Edelstone Professor of Marketing and a King Steel Faculty Fellow, is a director of Charles E. Merrill Faculty Scholar, directs Booth’s Center for Research in Security Booth’s Kilts Center for Marketing, is a Prices, and a member of the Bank Board faculty research fellow at the National of the National Bank of Slovakia. He Bureau of Economic Research and is has written on a broad range of topics an academic trustee at the Marketing including sustainable investing, income Science Institute. He has published inequality, populism, and many other numerous papers on quantitative aspects of financial markets and asset marketing and empirical industrial management. (Pages 18, 27, and 42) organization. (Page 49) FACULTY ILLUSTRATIONS BY JOHN KENZIE: BY ILLUSTRATIONS FACULTY GLEN GYSSLER BY ILLUSTRATION PHOTO Spring 2021 Chicago Booth Review 3 285697_1-29.indd 3 2/9/21 4:28 PM Find the articles to which these comments refer at Review.ChicagoBooth.edu. JOIN THE SO MUCH FOR THE FACTS, LISTEN TO BLACK PEOPLE; DON’T CONVERSATION WHERE’S THE THEORY? JUST READ THEIR TWEETS Subscribe to our weekly email newsletter at The downfall (and possible How should companies respond to Review.ChicagoBooth.edu, salvation) of expertise (Winter Black Lives Matter? (Winter 2020/21) and follow us on social media: 2020/21) Twitter If companies and institutions his- @chicagoboothrev [Lars Peter] Hansen points torically were more open minded to Facebook to a major problem. Everyone collecting and listening to the experi- @chicagoboothrev wants to speak on the basis of facts, ences and perspectives of minorities at least in appearance. But the facts (including underrepresented minorities), Instagram @chicagoboothreview have no language. The reality must we might not need to analyze social media be examined with the help of a channels for sentiment. Since openly LinkedIn: Chicago Booth Review theoretical framework or on the basis discussing the challenges and issues of models. minorities face is on paper accepted but YouTube: —@mrjahan49 in reality frowned upon, I guess Twitter is Chicago Booth Review the next best source. And keep in mind, To understand the world, it is Black experiences are extremely diverse, not enough to look at data on a far more so than television portrays. WE WELCOME graph or run a regression. You need a —Lawrence W.