First Look

August 23, 2011

Advertising That Bites Back

In an unexpected finding in their research paper Advertising, the Matchmaker, Bharat N. Anand and Ron Shachar discovered that poorly targeted television advertising can actually decrease a consumer's interest in buying a product. The paper, to be published in RAND Journal of Economics, looks at the "matching role of advertising" as seen through the lens of cross-promotions used by TV networks to entice viewers to watch other programs. The paper cites the example of a man, who is interested in sports and action shows, viewing a cross-promotion for a new romance show. It turns out that having seen the ad for the romance, he's less likely to watch it than if he knew nothing about it. The researchers observe: "The danger of exposing the wrong consumer to advertisements creates sharp incentives for precise targeting and increases the demand for media channels that deliver highly segmented audiences."

Understanding Government Debt

Understanding the mechanics of government debt goes beyond simply knowing about deficits and debt. In the note "How Government Debt Accumulates," Dante Roscini and Jonathan Schlefer explain the mechanics behind how that happens. The authors broaden our understanding by showing how a variety of factors including interest rates, exchange rates, and inflation all contribute to government debt levels.

Ufc: Fighting For Life

Last week, The Ultimate Fighting Championship and the FOX network announced an agreement that will see near 70 fight events broadcast over seven years-a major win for UFC, which in 2001 was near bankruptcy. In the new case "Ultimate Fighting Championship: License to Operate," George Serafeim and Kyle Welch look at the decisions of potential investor Lorenzo Fertitta deciding whether to invest in the company.

— Sean Silverthorne


Challenges to Business in the Twenty-First Century

An abstract is unavailable at this time.


Advertising, the Matchmaker


We empirically study the informational role of advertising in matching consumers with products when consumers are uncertain about both observable and unobserved program attributes. Our focus is on the network television industry, in which the products are television shows. We estimate a model that allows us to distinguish between the direct effect of advertising on utility and its effect through the information set. A notable behavioral implication is that exposure to informational advertising can decrease the consumer's tendency to purchase the promoted product. The structural estimates imply that an exposure to a single advertisement decreases the consumer's probability of not choosing her best alternative by approximately 10%. Our results are relevant for industries characterized by product proliferation and horizontal differentiation.

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Accelerating the Adoption of Integrated Reporting


This chapter describes the concept of integrated reporting, provides a brief history of its development, reviews the current state of practice, presents a strategy for institutional change that will accelerate the adoption of integrated reporting in order to meet the five-year objective, and concludes with a call to the reader to do whatever he or she can to speed the adoption of integrated reporting.

A 2-phase Labeling and Choice Architecture Intervention to Improve Healthy Food and Beverage Choice


Objectives: We assessed whether a 2-phase labeling and choice architecture intervention increased sales of healthy food and beverages in a large hospital cafeteria.

Methods: Phase 1 was a 3-month color-coded labeling intervention (red= "unhealthy"; yellow= "less healthy"; green= "healthy"). Phase 2 added a 3-month choice architecture intervention which increased visibility and convenience of some green items. We compared relative changes in 3-month sales from baseline to Phase 1 and from Phase 1 to Phase 2.

Results: At baseline (N=977,793 items, including 199,513 beverages), 24.9% of sales were red and 42.2% green. Sales of red items decreased in both phases (p

Conclusions: A color-coded labeling intervention improved sales of healthy items and was enhanced by a choice architecture intervention.


Working Papers

When Smaller Menus Are Better: Variability in Menu-Setting Ability


Are large menus better than small menus? Recent literature argues that individuals' apparent preference for smaller menus can be explained by choosers' behavioral biases or informational limitations. These explanations imply that absent behavioral or informational effects, larger menus would be objectively better. However, in an important economic context—401(k) pension plans—we find that larger menus are objectively worse than smaller menus, as measured by the maximum Sharpe ratio achievable. We propose a model in which menu setters differ in their ability to preselect the menu. We show that when the cost of increasing the menu size is sufficiently small, a lower-ability menu setter optimally offers more items in the menu than a higher-ability menu setter. Nevertheless, the menu optimally offered by a higher-ability menu setter remains superior. This results in a negative relation between menu size and menu quality: smaller menus are better than larger menus.

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Cases & Course Materials

BANEX and the ,,No Pago" Movement (A)

Shawn Cole and Baily Blair Kempner
Harvard Business School Case 211-092

This case examines Grassroots Capital's decision of whether or not to continue investing in a Bolivian microfinance bank that is suffering financial distress.

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The Sandbox: Creating a Bottom-Up Entrepreneurial Ecosystem

Shikhar Ghosh, Lynda M. Applegate, Rhea Ghosh, and Amar Kumar
Harvard Business School Case 811-053

Discussion of new model of social enterprise that applies the venture capital model to social enterprise.

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Redesigning a 401(k) Plan at Haley-Midland

Robert C. Pozen and Scott Perl
Harvard Business School Case 311-128

Rose Adams, the CFO of Haley-Midland, Inc., dispensed with pleasantries and started right in on her questions for Jim Sweeney, the senior vice president of human resources, and Nancy Walters, Haley-Midland's vice president and treasurer, about the brewing crisis with the company's 401(k) plan.

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How Government Debt Accumulates

Dante Roscini and Jonathan Schlefer
Harvard Business School Note 711-087

This note discusses the economics of government debt accumulation. Fiscal deficits are only part of the picture; other factors include the level of debt as a percent of nominal GDP; the interest rate; the inflation rate; the growth rate; and changes in the exchange rate if some debt is owed in a foreign currency. The note discusses how these factors interact to affect government debt levels.

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Oddo Securities—ESG Integration

George Serafeim, Paul M. Healy, and Aldo Sesia
Harvard Business School Case 111-085

The case describes the process of integrating environmental, social, and governance issues into valuation models and research analyst recommendations.

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Ultimate Fighting Championship: License to Operate

George Serafeim and Kyle Welch
Harvard Business School Case 112-011

The case describes the challenges that Ultimate Fighting Championship (UFC) faced as a result of regulatory opposition and loss of the license to operate. The genesis of the business idea, the subsequent growth, and the fall of the UFC are described. The case concludes with Lorenzo Fertitta deciding whether to invest in the company.

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