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Risk and UncertaintyRemove Risk and Uncertainty →

New research on risk and uncertainty from Harvard Business School faculty on issues including risk assessment and management, economic uncertainty, and disaster preparedness.
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Designing, Not Checking, for Policy Robustness: An Example with Optimal Taxation

by Benjami Lockwood, Afras Y. Sial, and Matthew C. Weinzierl

The approach used by most economists to check academic research results is flawed for policymaking and evaluation. The authors propose an alternative method for designing economic policy analyses that might be applied to a wide range of economic policies.

Older People Are Less Pessimistic about the Health Risks of COVID-19

by Pedro Bordalo, Katherine B. Coffman, Nicola Gennaioli, and Andrei Shleifer

The pandemic presents a unique opportunity to investigate formation of beliefs about an unprecedented, widespread, and life-threatening event. One finding: COVID-19 makes the prospect of disease and death particularly salient for the young.

The Pass-Through of Uncertainty Shocks to Households

by Marco Di Maggio, Amir Kermani, Rodney Ramcharan, Vincent Yao, and Edison Yu

A firm’s stock price volatility during times of uncertainty can significantly reduce workers’ consumption and savings decisions. This paper sheds light on the economic effects of uncertainty, and in particular, how firms provide insurance to their workers during periods of turmoil.

Strategic Foresight as Dynamic Capability: A New Lens on Knightian Uncertainty

by J. Peter Scoblic

Creating strategy under conditions of uncertainty is not easy, so many managers rely on a single analogy to past experience to guide their decisions. This paper argues, by contrast, that imagining multiple possible futures can be a more useful guide to uncertainty, improving judgment and adaptability in the face of change.

What Are Lessons for Leaders from This Black Swan Crisis?

by James Heskett

SUMMING UP: Readers of this month's James Heskett post disagree on whether COVID-19 is a Black Swan event, but most argue that organizations must be better prepared for inevitable downturns. Open for comment; Comment(s) posted.

Novel Risks

by Robert S. Kaplan, Dutch Leonard, and Anette Mikes

Companies can manage known risks by reducing their likelihood and impact. But such routine risk management often prevents them from recognizing and responding rapidly to novel risks, those not envisioned or seen before. Setting up teams, processes, and capabilities in advance for dealing with unexpected circumstances can protect against their severe consequences.

Crowdsourcing Is Helping Hollywood Reduce the Risk of Movie-Making

by Michael Blanding

Hollywood insiders have created "The Black List," which helps surface good but often overlooked scripts. Does the wisdom of the crowd work at the box office? Research by Hong Luo. Open for comment; Comment(s) posted.

rTSR: When Do Relative Performance Metrics Capture Relative Performance?

by Paul Ma, Jee-Eun Shin, and Charles C. Y. Wang

Managers are increasingly evaluated based on relative performance metrics, particularly relative total shareholder returns (rTSR). This paper finds that the majority of firms that tie CEO performance-based contracts to rTSR do a remarkable job of filtering out the systematic risk in TSR. However, a significant portion of firms make relatively poor choices in the design and selection of rTSR, a result of weak governance and an overreliance on compensation consultants.

What Should the Leadership of YouTube Do?

by James Heskett

SUMMING UP Readers comment on how YouTube CEO Susan Wojcicki should solve its “sustainability” versus "respectability" problem. What should YouTube do? asks James Heskett. Open for comment; Comment(s) posted.

Rocket-tunity: Can Private Firms Turn a Profit in Space?

by Scott Wallask

Private rocket companies are competing to be the first to send paying tourists into space, perhaps even this year. Matthew Weinzierl lays out the strategic roadmap to the stars. Open for comment; Comment(s) posted.

Green Businesses Are Incredibly Difficult to Make Profitable. Try It Anyway

by Dina Gerdeman

Making a business successful is a challenge in itself, but making a green business profitable is an even harder journey. For society's sake, entrepreneurs must be prepared to make that journey, says Geoffrey Jones. Open for comment; Comment(s) posted.

The Better Way to Forecast the Future

by Roberta Holland

We can forecast hurricane paths with great certainty, yet many businesses can't predict a supply chain snafu just around the corner. Yael Grushka-Cockayne says crowdsourcing can help. Open for comment; Comment(s) posted.

What’s the Best Administrative Approach to Climate Change?

by James Heskett

SUMMING UP: James Heskett's readers point to examples of complex environmental problems conquered through multinational cooperation. Can those serve as roadmaps for overcoming global warming? Open for comment; Comment(s) posted.

A Measure of Risk Appetite for the Macroeconomy

by Carolin E. Pflueger, Emil Siriwardane, and Adi Sunderam

This paper sheds new light on connections between financial markets and the macroeconomy. It shows that investors’ appetite for risk—revealed by common movements in the pricing of volatile securities—helps determine economic outcomes and real interest rates.

Business, Governments, and Political Risk in South Asia and Latin America Since 1970

by Geoffrey Jones and Rachael Comunale

This study shows how perceptions of political risk by business leaders in emerging markets have differed between regions. For Latin Americans, macroeconomic and policy turbulence were the biggest sources of risk. For South Asians, excessive bureaucracy was the biggest source of risk. The study is based on a unique Harvard Business School oral history database.

How Companies Managed Risk (and Even Benefitted) in World War Internment Camps

by Julia Hanna

Foreign businesses located in at-war countries are often victims of expropriation. Historian Valeria Giacomin explores how German businesses in the United Kingdom and India mitigated risk and even benefitted when their employees were placed in internment camps during the World Wars. Open for comment; Comment(s) posted.

Can Financial Innovation Solve Household Reluctance to Take Risk?

by Laurent Calvet, Claire Celerier, Paolo Sodini, and Boris Vallée

Structured products are an innovative class of retail financial products with option-like features. This paper provides empirical evidence suggesting that innovative financial products like these can help alleviate loss aversion and thus the low participation of households in risky asset markets.

Personality Traits of Entrepreneurs: A Review of Recent Literature

by Sari Pekkala Kerr, William R. Kerr, and Tina Xu

This paper brings together recent findings in the academic literature on the prevalence of various personality traits among entrepreneurs and their impact on venture performance. It focuses on three themes: (1) personality traits of entrepreneurs and how they compare to other groups; (2) attitudes towards risk that entrepreneurs display; and (3) overall goals and aspirations that entrepreneurs bring to their pursuits.

A Strategy For Steady Leadership in an Unsteady World

by Bill George

Management is tough enough in normal times. But what are leaders to do when their companies are buffeted by global uncertainty? Bill George explains charting a course True North. Open for comment; Comment(s) posted.

The Stock Market and Bank Risk-Taking

by Antonio Falato and David Scharfstein

It is clear that risk-taking by financial institutions is one of the main causes of financial crises and severe recessions. Yet we know relatively little about what gives rise to such risk-taking in the first place. This paper presents evidence that a focus on short-term stock prices induces publicly-traded banks to increase risk relative to privately-held banks. The findings provide support for the view that compensation schemes should require management to hold stock for longer periods to mitigate their incentives to pump up short-term earnings and the short-term stock price.