- Winter 2017
- MIT Sloan Management Review
Abstract—There is a growing belief that sophisticated algorithms can explore huge databases and find relationships independent of any preconceived hypotheses. But in businesses that involve scientific research and technological innovation, this approach is misguided and potentially risky. This article argues that researchers need to pay close attention to issues such as biases in data collection and spurious correlation.
Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52048
- January 2017
- Journal of Financial Economics
Abstract—We study the impact of the zero lower bound interest rate policy on the industrial organization of the U.S. money fund industry. We find that in response to policies that maintain low interest rates, money funds change their product offerings by investing in riskier asset classes, are more likely to exit the market, and reduce the fees they charge their investors. The consequence of fund closures resulting from interest rate policy is the relocation of resources in affected fund families and in the asset management industry in general, as well as decline in capital of issuers borrowing from money funds.
Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=51404
- Review of Finance
Abstract—We study a model where some investors (“hedgers”) are bad at information processing, while others (“speculators”) have superior information-processing ability and trade purely to exploit it. The disclosure of financial information induces a trade externality: if speculators refrain from trading, hedgers do the same, depressing the asset price. Market transparency reinforces this mechanism, by making speculators’ trades more visible to hedgers. As a consequence, asset sellers will oppose both the disclosure of fundamentals and trading transparency. This is socially inefficient if a large fraction of market participants are speculators, and hedgers have low processing costs. But in these circumstances, forbidding hedgers’ access to the market may dominate mandatory disclosure.
Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52034
- Contemporary Turkish Politics
Abstract—No abstract available.
Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52021
- November 28, 2016
- Harvard Business Review
Abstract—Precision Medicine requires large datasets to identify the mutations that lead to various cancers. Currently, genomic information is hoarded in fragmented silos within numerous academic medical centers, pharmaceutical companies, and some disease-based foundations. For new precision therapies to be developed, these data sets need to be shared broadly. Patients can help lead this effort by exercising their right to have their anonymized data made more broadly available.
Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52046
- October 2016
- Business History Review
Abstract—This article examines how, starting in the 1870s, food manufacturers in the United States began to use standardized color, achieved by synthetic dyes, as part of their marketing strategies. The emergence of the synthetic dye industry paralleled the growth of mass production and mass marketing in the American food industry. It provided food manufacturers with an economical means to standardize their products and helped establish brand identities through consistent appearance. By 1938, food dyes had achieved such widespread use, and had raised such public concern, that the federal government amended the 1906 Pure Food and Drug Act to implement more stringent measures to regulate the industry.
Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52032
Populism and the Return of the 'Paranoid Style': Some Evidence and a Simple Model of Demand for Incompetence as Insurance Against Elite Betrayal
Abstract—We present a simple model of populism as the rejection of “disloyal” leaders. We show that adding the assumption that people are worse off when they experience low income as a result of leader betrayal (than when it is the result of bad luck) to a simple voter choice model yields a preference for incompetent leaders. These deliver worse material outcomes in general, but they reduce the feelings of betrayal during bad times. Some evidence consistent with our model is gathered from the Trump-Clinton 2016 election: on average, subjects primed with the importance of competence in policymaking decrease their support for Trump, the candidate who scores lower on competence in our survey. But two groups respond to the treatment with a large (between 5 and 7 percentage points) increase in their support for Donald Trump: those living in rural areas and those that are low educated, white, and living in urban and suburban areas.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=52059
Abstract—We study the extent to which firms rely on the capital markets to fund their payouts. We find that 42% of firms that pay out capital also initiate debt or equity issues in the same year, resulting in 32% of aggregate payouts being externally financed. Most firms with simultaneous payouts and security issues do not generate enough operating cash flow to fund both their investment and payouts without the proceeds of these issues. Firms devote more external capital to finance their share repurchases than to avoid regular dividend cuts. Debt is the main source of capital used to externally finance payouts, particularly when credit market conditions are favorable. Firms’ desire to jointly manage their capital structure and liquidity policies—for tax or agency reasons—appears to be a key driver of their decision to simultaneously raise and pay out capital.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=48383
Abstract—We consider a price-based network revenue management problem where a retailer aims to maximize revenue from multiple products with limited inventory over a finite selling season. As common in practice, we assume the demand function contains unknown parameters, which must be learned from sales data. In the presence of these unknown demand parameters, the retailer faces a tradeoff commonly referred to as the exploration-exploitation tradeoff. Towards the beginning of the selling season, the retailer may offer several different prices to try to learn demand at each price (“exploration" objective). Over time, the retailer can use this knowledge to set a price that maximizes revenue throughout the remainder of the selling season (“exploitation" objective). We propose a class of dynamic pricing algorithms that builds upon the simple yet powerful machine learning technique known as Thompson sampling to address the challenge of balancing the exploration-exploitation tradeoff under the presence of inventory constraints. Our algorithms prove to have both strong theoretical performance guarantees as well as promising numerical performance results when compared to other algorithms developed for similar settings. Moreover, we show how our algorithms can be extended for use in general multi-armed bandit problems with resource constraints, with applications in other revenue management settings and beyond.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=49779
Abstract—The Best Alternative To a Negotiated Agreement (“BATNA”) concept in negotiation has proved to be immensely useful. It is widely accepted that a more attractive BATNA (“walkaway option”) often increases one’s bargaining power. A minimally necessary condition for an agreement to be mutually acceptable is that each side prefers the deal to its BATNA. Thus, how well each party’s BATNA serves its interests determines whether a zone of possible agreement even exists—within which any mutually acceptable deals fall—and, if it does, where such a zone is located. In tandem with its value in practice, BATNA has become a wildly successful acronym (with over 17 million Google results). Yet the initial characterization of this concept in Getting to Yes (Fisher, Ury, and Patton, 1991) along with many later interpretations can be problematic, limiting, and even misleading in at least three ways that this article analyzes and illustrates. First, early characterizations could be easily read to imply that one’s BATNA could not itself be a negotiated agreement. Second, and more seriously, common descriptions of one’s BATNA as the “best outside option, independent of the other side” needlessly limit its applicability, especially in the many bargaining relationships where BATNAs are inherently interdependent. Third, BATNAs are often mistakenly described mainly as “last resorts” relevant only in case of impasse or “if the other side is more powerful.” While savvy negotiators and analysts generally avoid these pitfalls, the less sophisticated can go astray. Robust correctives to these misimpressions are offered and related to three different kinds of “no” in negotiation: a “tactical no,” a “no to re-set” that permits moves to favorably alter the underlying setup, and a “final no.”
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=52030
Abstract—President Richard M. Nixon was elected in 1968 with the widespread expectation that he would bring about an end to the costly and unpopular war in Vietnam. The task largely fell to National Security Adviser Henry Kissinger. When the negotiations began, North Vietnam appeared to have a winning hand with time on its side. To induce agreement from North Vietnam on acceptable terms, Kissinger orchestrated a complex negotiation campaign with multiple fronts: North Vietnam, the U.S. public and Congress, China, the USSR, West Germany, and South Vietnam. Kissinger’s efforts culminated in the signing of the 1973 Paris Peace Accords, which held for about two years before collapsing in the wake of Watergate. The account in this working paper carefully describes—but does not analyze nor draw lessons from—core features of these challenging negotiations. Forthcoming papers will provide analysis and derive general insights from this negotiation campaign.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=52027
Abstract—Following a brief summary of Henry A. Kissinger’s career, this paper describes six of his most pivotal negotiations: the historic establishment of U.S. diplomatic relations with the People’s Republic of China, the easing of geopolitical tension with the Soviet Union, symbolized by the signing of the first Strategic Arms Limitation Treaty (“SALT I”), the limited success of the SALT II negotiations, the mediation after the 1973 Arab-Israeli war of the agreement on Sinai disengagement between Egypt and Israel and of the Israel-Syria Separation of Forces Agreement, and the Paris Peace Accords to end the Vietnam War. An appendix lists other important negotiations in which Kissinger played key roles. In subsequent papers (forthcoming), the authors will examine these and other major negotiations in which Henry Kissinger played leading roles in order to extract their most important insights into the principles and practice of effective negotiation.
Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=48323
- Harvard Business School Case 817-043
In late 2015, Crystal Call Maggelet, president and CEO of FJ Management, is working with her investment committee to help set the company’s strategic direction. Maggelet, daughter of the company’s founder, has led FJ Management since 2009 when she stepped in as CEO following an unexpected bankruptcy. At that time, FJ Management was known as Flying J. Flying J owned and operated hundreds of truck stops—which it called Travel Plazas—nationwide and was a growing multi-billion dollar business, but broader problems in the oil and credit markets in late 2008 forced it to declare Chapter 11 bankruptcy. Maggelet, who had been serving on Flying J’s board, became its new CEO and was able to successfully manage competing stakeholder demands, keep the business running, and ultimately paid back every dollar it owed to its creditors by selling the company’s core assets—its travel plazas—to its main competitor in 2010. Since that time, the company had returned to a healthy financial position, diversified its holdings, and made investments in diverse industries to determine how to grow the company, since renamed FJ Management. In 2015, Maggelet now wants to set a clear path forward for the company.
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- Harvard Business School Case 217-026
Ethan Anderson, the CEO of San Francisco–based e-commerce company MyTime, must decide on the company's growth strategy. MyTime’s first product was a website and mobile app that offered consumers a convenient way to book appointments with local merchants throughout the United States. Student must assess the company's growth strategy and develop a model to value a prospective customer to the company's website.
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- Harvard Business School Case 517-006
No abstract available.
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- Harvard Business School Case 117-025
One of the key roles of costing systems is to support the evaluation of performance and facilitate appropriate resource allocations. Through participation in a comparative cost study, management at Springfield Hospital, known for its heavy focus on operational excellence, become aware of opportunities for further improvement. Analysis of the differences in costs, uses, and allocations of resources will inform management in the decision and implementation of strategic plans. This case stimulates reflections on the importance of costing systems, in particular Time-Driven Activity Based Costing, and variance analysis as decision support mechanisms.
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- Harvard Business School Case 217-018
Itamar Frankenthal was evaluating bank loan proposals to finance his acquisition of Rose Electronics Distributing Company (“Rose”). He contacted 40 small and large banks that lent in the region, and those outreach and follow-up calls resulted in nine term sheets received from different lenders. With the proposals in-hand, he needed to decide which one was the most favorable.
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- Harvard Business School Case 117-112
This module explains how managers use performance goals and incentives to ensure that employee actions align with the strategy of the organization. We demonstrate how to use goals to communicate business strategy, the importance of targets and benchmarks for motivation, and the multiple purposes for which goals are used, including planning, coordination, motivation, and evaluation. We explain why performance goals must pass three important tests: alignment with strategy, measurability, and linkage to economic value creation. This module covers both intrinsic and extrinsic rewards and includes a discussion of short-term incentives such as bonuses or public recognition and long-term incentives such as deferred payments or stock options. Because performance goals and incentives define success (and failure) for individuals, this module also explores the interaction of goals and measures with human behavior.
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- Harvard Business School Case 117-113
This module reading begins by describing the three sources of strategic risk—operations risk, asset impairment risk, and competitive risk—and demonstrates how these risks can undermine an entire business. To assist in the identification of these risks, the risk exposure calculator is introduced as a diagnostic tool to assess the pressures created by growth, culture, and information management. Finally, the dangerous triad of pressure, opportunity, and rationalization is discussed and analyzed to understand the conditions under which employees may be tempted to engage in misrepresentation and fraud.
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- Harvard Business School Case 117-114
This module reading provides an overview of the business conduct boundaries, strategic boundaries, and internal control systems used to manage risk. Boundary systems—linked to clear, enforceable sanctions—are essential whenever demanding performance goals are set and rewards are linked to performance outcomes. A framework is introduced for designing internal control systems to safeguard information and assets. These internal controls provide the checks and balances to ensure that errors of omission and commission cannot slip undetected into the transaction processing stream. The behavioral and motivational assumptions that underlie these systems are analyzed. Finally, the module described how managers can impose strategic boundaries to limit where employees look for opportunities and commit scarce resources.
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- Harvard Business School Case 717-424
In 2016, LA Fitness was the largest chain of non-franchised fitness clubs in North America, operating 676 clubs, serving 4.9 million members, and generating revenues of over $1.9 billion. Founded by Chinyol Yi, Louis Welch, and Paul Norris in 1984, the privately held company revealed little about its future plans or its operations, leading one journalist to write of “the quiet ascension of LA Fitness.” However, it continued to expand aggressively, focusing on a full-service model, often including swimming pools and racquetball courts, at moderate prices. Rumors of an IPO had circulated for over a decade, triggered by the fact that several private-equity houses had invested in the business and might be looking for an exit. In 2014, the company had arranged up to $1.6 billion in debt to fund expansion and buy out some investors. Whether this would be sufficient to appease its owners and support future growth was not clear. Nor was it clear how much more expansion LA Fitness could expect with its full-service model in the highly competitive fitness-club industry.
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