First Look

Abstract— We measure the behavior of 1,114 CEOs in six countries parsing granular CEO diary data through an unsupervised machine learning algorithm. The algorithm uncovers two distinct behavioral types: "leaders" and "managers." Leaders focus on multi-function, high-level meetings, while managers focus on one-to-one meetings with core functions. Firms with leader CEOs are on average more productive, and this difference arises only after the CEO is hired. The data is consistent with horizontal differentiation of CEO behavioral types and firm-CEO matching frictions. We estimate that 17% of sample CEOs are mismatched and that mismatches are associated with significant productivity losses.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=55632

Abstract— Home-delivered prescriptions have no delivery charge and lower copayments than prescriptions picked up at a pharmacy. Nevertheless, when home delivery is offered on an opt-in basis, the take-up rate is only 6%. We study a program that makes active choice of either home delivery or pharmacy pick-up a requirement for insurance eligibility. The program introduces an implicit default for those who don’t make an active choice: pharmacy pick-up without insurance subsidies. Under this program, 42% of eligible employees actively choose home delivery, 39% actively choose pharmacy pickup, and 19% make no active choice and are assigned the implicit default. Individuals who financially benefit most from home delivery are more likely to choose it. Those who benefit least from insurance subsidies are more likely to make no active choice and lose those subsidies. The implicit default incentivizes people to make an active choice, thereby playing a key role in choice architecture.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=55689

Abstract— This chapter summarizes research in behavioral health economics, focusing on insurance markets and product markets in health care. We argue that the prevalence of choice difficulties and biases leading to mistakes in these markets establish a special place for them in economic analysis. In addition, we argue that while the behavioral health-economics literature has done a better job documenting consumer-choice mistakes in insurance and treatment choices than explaining why those mistakes occur, it is clear that we should not ignore these mistakes in our analyses. We document evidence showing that consumers leave lots of money on the table in their insurance-plan choices, sometimes thousands of dollars. This is true both when consumers make active choices (e.g., they do not have a default plan) and when they make passive choices (e.g., they have a default plan). We discuss the implications of this body of work for the design and regulation of insurance markets, including the interaction between consumer choice difficulties or biases and adverse selection. We then document evidence on consumer mistakes in health-care utilization and treatment choices, especially in response to changes in prices such as copayments and deductibles. We show how choice difficulties or biases may lead patients to respond to such increases in patient cost-sharing by reducing demand for high-value care, muddying the traditional argument that the price elasticity of demand for medical care meaningfully captures the degree of moral hazard. We conclude with directions for future research.

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Abstract— There is limited empirical evidence about the impact of for-profit health insurers on various outcomes. I study the effects of conversions to for-profit status by Blue Cross Blue Shield (BCBS) affiliates in 11 states, spanning 28 geographic markets. I find both the BCBS affiliate and its rivals increased premiums following conversions in markets where the converting affiliate had substantial market share. Medicaid enrollment rates also increased in these markets, a pattern consistent with "crowd in" of families who were formerly privately insured. The results suggest for-profit insurers are likelier than not-for-profit insurers to exercise market power when they possess it.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=55635

Abstract— This paper examines whether fraud allegations affect firms’ contracting with the government. Using a dataset of whistleblower allegations brought under the False Claims Act against firms accused of defrauding the government, we find that federal agencies do not reduce the total dollar volume of contracts with accused firms; however, they substitute approximately 14% of the harder-to-monitor cost-plus contracts for fixed-price contracts. This effect is concentrated in the procurement of services and explained by contract and service substitution. Lastly, we find that after the conclusion of the investigation, the government reduces the contract dollar volume by approximately 15% for cases that resulted in a settlement. Our findings indicate that contract-design changes are used to mitigate uncertainty in suppliers’ reputation.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=55439

Abstract— We examine the performance consequences of using managerial discretion in rewarding employee performance in a setting where compensation is highly interdependent—that is, subjective rewards or penalties for some employees cause others to miss out on those rewards and penalties. In our field setting, managerial discretion results in publicly observable discrepancies between rankings based on objective measures and the actual recipients of the rewards and penalties. We examine the performance effects associated with receiving actual subjective rewards/penalties (i.e., the nominal effect) and performance effects associated with failing to receive rewards/penalties as a result of managerial discretion (i.e., the opportunity effect). We find that actual awardees of subjective rewards (penalties) exhibit higher (lower) subsequent performance, and that employees who missed out on potential rewards (penalties) due to management’s subjectivity exhibit lower (higher) subsequent performance. In further tests, we explore the mechanisms underlying the relationship between managerial discretion and future performance.

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Abstract— U.S. states increasingly require identification to vote—an ostensive attempt to deter fraud that prompts complaints of selective disenfranchisement. Using a difference-in-differences design on a 1.3-billion-observations panel, we find the laws have no negative effect on registration or turnout overall or for any group defined by race, gender, age, or party affiliation. These results hold through a large number of specifications and cannot be attributed to mobilization against the laws, measured by campaign contributions and self-reported political engagement. ID requirements have no effect on fraud either—actual or perceived. Efforts to improve elections may be better directed at other reforms.

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Abstract— No abstract available.

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Abstract— Things change. Things also get changed—often. Why? The obvious reason is that revising things makes them better. In the current research, we document a less obvious reason: Revising things makes people think they are better, absent objective improvement. We refer to this phenomenon as the revision bias. Nine studies document this effect and provide insight into its psychological underpinnings. In Study 1, MBA students perceived their revised resumes to be of higher quality the more they differed from their original versions, but this perception was not justified: observers judged originals (inaccurately) labeled as revisions to be superior to revisions (inaccurately) labeled as originals. Study 2 pinpoints the direction of the effect: Revisions are appealing, as opposed to originals being unappealing. Moreover, the revision bias holds in a variety of settings in which the revision is devoid of objective improvement—when revisions are trivial (Study 3A), incidental (Study 3B), non-existent (Study 3C), and even objectively worse than the original (Study 3D). Study 4 directly tests the self-fulfilling nature of the revision bias, testing whether mere revision framing leads people to become less critical of the experience—in this study, less sensitive to possible bugs while playing an otherwise identical “revised” video game—and whether this mediates the effect of revision framing on positive evaluations. Studies 5A and 5B offer further support by testing whether the revision bias is accentuated when people engage in a holistic processing style, whether measured as an individual difference (Study 5A) or experimentally induced (Study 5B).

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Abstract— This paper studies the effects of the USPTO's patent secrecy program in World War II, under which approximately 11,200 U.S. patent applications were issued secrecy orders that halted examination and prohibited inventors from disclosing their inventions or filing in foreign countries in the interests of national security. Secrecy orders were issued most heavily in areas important to the war effort—including radar, electronics, and synthetic materials—and nearly all rescinded en masse at the end of the war. I find that compulsory invention secrecy was effective at keeping affected technology out of the public domain, but it appears to have reduced and delayed follow-on invention, reduced entry into patenting, and restricted commercialization. The results shed light on the consequences of invention secrecy, which is widely used by inventors to protect and appropriate the returns to innovation and yield lessons for ongoing policy debates over potential measures to protect U.S. invention against the growing incidence of foreign IP theft today.

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Abstract— From “Chick Beer” to “Dryer sheets for Men,” identity-based labeling is frequently deployed to appeal to people who hold the targeted identity. However, five studies demonstrate that identity appeals can backfire, alienating the very individuals they aim to attract. We begin by demonstrating backlash against identity appeals in the field during the 2016 presidential election (Study 1) and in the lab (Study 2). This (in)effectiveness of identity appeals is driven by categorization threat—feeling unwillingly reduced to a single identity—which is induced when a) the identity deployed is that of a typically marginalized group (Studies 3-4) and b) the appeal evokes a stereotype about that identity (Study 5). Ironically, identity appeals often drive identity-holders away from options they would have preferred in the absence of that appeal.

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Abstract— It is a well-established result in social psychology that when people feel anxious, they seek advice from others. However, increasingly companies that operate in high-anxiety settings (like financial services, health care, and education) are deploying self-service technologies (SSTs), through which anxious customers transact without human contact. The impact of customer anxiety on service relationships is neither well understood, nor consistently factored into service design. In this paper, two laboratory experiments and one field experiment, conducted in financial service contexts, document the negative effects of anxiety on customer choice satisfaction, firm trust, and long-term engagement and explore the impact of giving self-service consumers the option to interact with a person. Participants engaged in an online investing simulation who are made to feel anxious due to market downturns are less satisfied with their choices and report lower levels of trust in the firm. Providing participants with the opportunity to interact with an expert, or even another participant, dampens anxiety’s negative effects on choice satisfaction and, by extension, firm trust. Interestingly, we find that very few participants who are offered the option to interact with a person take advantage of the opportunity, which is consistent with the idea that it is the mere availability of human contact that mitigates anxiety’s deleterious effects. Finally, in a field experiment conducted with a credit union’s self-service term loan approval process, the incorporation of access to human contact increased customer loan acceptance by 16%, suggesting that access to human contact can improve long-term service engagement.

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Abstract— This paper examines contemporary economic theories that focus on the design and management of business organizations. In the first part of the paper, a taxonomy is presented that describes the different types of economists interested in this subject—market economists, regulatory economists, macro economists, and enlightened economists—and illustrates the extent to which each tribe has been captured by the concept of self-interest. After arguing that this fixation has caused—and is likely to continue to cause—significant harm to our economy, the paper then presents an alternative approach based on a theory of business and discusses the implications for research and public policy.

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Abstract— We jointly examine the effects of television advertising and field operations in U.S. presidential elections, where the former is referred to as the “air war” and the latter as the “ground game.” Specifically, we look at how different campaign activities—field operations, candidate advertising, and outside advertising—vary in their effectiveness for voters with different political predispositions. We compile a comprehensive dataset that includes voting outcomes, detailed campaign activities, and voters’ party affiliation for the three presidential elections from 2004 to 2012. Individuals' voting preferences are modeled using a random-coefficient aggregate discrete-choice model, in which we incorporate both observed and unobserved individual heterogeneity. We find that different campaign activities have heterogeneous effects depending on voters’ party affiliations. Field operations are more effective for partisans, candidate advertising is more effective for non-partisans, whereas outside advertising is more effective for partisan voters. Our findings can help strategists efficiently allocate resources across and within channels to design an effective political marketing campaign.

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In 2013, the Swiss sports data company Sportradar debated whether to expand from its core business of data provision to bookmakers into sports media products. Sports data was becoming a commodity, and in the future, sports leagues might reduce their dependence on third-party data feeds such as Sportradar’s, prefering to develop data services in-house. Thus, CEO Carsten Koerl believed the company needed to branch into sports media, not merely supplying data to companies but finding ways to tell stories about that data. However, Sportradar's core business was thriving, whereas a recent attempt to branch out into video player tracking systems had proved to be a costly failure. The team weighed the pros and cons of various media ventures, including online sports betting minigames, a social media site, and streaming of sports content.

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No abstract available.

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No abstract available.

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The case presents the challenges of scaling an asset-heavy company (that relies on its operations). It highlights how decisions on the early team impact a company’s ability to scale, linkage between growth and cash flows, as well the organizational impact of high growth. Rajesh Yabaji, Chanakya Hridaya, and B. Ramasubramaniam (Subbu) came together to create BlackBuck, with an aim to reduce inefficiencies in the movement of freight in India. A disconnect between the shippers (demand) and truck owners (supply), had created a layer of intermediaries (brokers) for transporting goods. The founders saw an opportunity in creating an online marketplace for freight—and uniting the truckers and shippers. Following its launch in April 2015, BlackBuck witnessed relentless growth and one year later, its revenue was on track to exceed the forecast by 300 percent. BlackBuck had operations in 200 locations across India and a team of over 1,000 people. The company had raised two rounds of funding (totaling $30 million) from solid investors. However, it was not clear that the business was profitable. Rapid scale had come at a cost. In June 2016, BlackBuck had $5 million in the bank and two months of runway. BlackBuck’s focus had been on raising capital and hiring operational staff to manage the complex service delivery for customers. There was a near absence of strong processes for internal operations such as HR, accounting, credit, invoicing, and collections. During this financial crunch, Flipkart (India’s e-commerce unicorn) offered BlackBuck $20 million in convertible debt that could potentially tide over the company’s short-term losses. The founders wondered whether they should change the approach to growth: Should they slow it down temporarily or maintain the growth rate (and fix operational issues)? There was a high probability that BlackBuck's cash balances would fall to zero. Given that scenario, taking Flipkart's money could save BlackBuck—but at the risk of losing control.

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The case examines the focus of an early stage company and how venture capital can distort a founder’s view. It encompasses issues such as financing, understanding the founders’ definition of success/failure, defining and pivoting a business model, and determining the organizational impact of a pivot as well as the role of VCs and boards in outlining company strategy. In 2008, Jason Jacobs, a fitness and technology enthusiast, created RunKeeper—an iPhone app to track a runner’s distance, speed, calories, and route taken. In its initial years, RunKeeper was a fast-growing, profitable company and did not utilize the $1.5 million it raised in its Seed and Series A rounds. As RunKeeper gained momentum, Jacobs created a grand health vision (Health Graph) that would increase the chances of securing VC funding. Heralded as the “Facebook of Fitness,” RunKeeper willed itself to be the one-stop location for all important health information for consumers. Despite raising $10 million, the next few years were turbulent. RunKeeper became allergic to revenue, ramped up its burn, and tried to pursue both the running app and the Health Graph—but did neither well. At the end of the case, the company is almost out of cash, and Jacobs has exhausted his prospects for raising external capital. He needs to revert to his current investors to keep the company afloat. Jacobs’ instinct suggests that refocusing the company on its core product and runner base would be the best way forward. However, the last round was raised on the promise of a big health vision. Jacobs wonders whether his current investors would fund a smaller vision and how onerous the terms would be. Would they push Jacobs to pursue a sale in an over-crowded health app market? Or would they decide that he was not the right person for the company?

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This case focuses on the potential for “reputational contagion” to the Nobel Prize from a scandal affecting one of its independent network member entities, the Swedish Academy. The latter is responsible for selecting the Nobel Prize in Literature, by appointment of Alfred Nobel. The Swedish Academy consists of 18 members appointed for life. Its primary responsibility is to preserve the purity, vigor, and majesty of the Swedish language. In 2017-18, The Swedish Academy was involved in a #MeToo sexual misconduct scandal precipitated by the behavior of a major cultural figure, who was married to an Academy member. The member had allegedly leaked advance information about the laureates to her husband. The scandal remained in the public eye and drew media attention for months. It affected the Academy’s reputation and led to an Academy decision not to make the 2018 award. The key issue is what, if anything, the Nobel Foundation should have done and should do during the course of the scandal, and why.

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Kurt Meyer, chief risk officer of Swissgrid, the Swiss national electricity transmission system operator, reflects on the risk management system he installed after the deregulation and liberalization of the European energy market. With 41 connections to other European networks, a failure in Swissgrid’s network could interrupt the supply of electricity in Switzerland and much of Europe. Meyer describes the periodic interactive risk workshops conducted at each business unit to identify, assess, and mitigate risks. Executive Risk Workshops focus on the CEO and the company’s leadership team and discuss the business units’ risk profiles and risks that cut across the units, such as safety, weather, and regulatory changes. New and emerging risks are discussed at Extraordinary Risk Workshops. Meyer recently deployed an app on employees’ smartphones for them to easily report anomalies or concerns. Reports from the app are embedded in a new real-time crisis management platform used by several Swiss companies, federal authorities, and the Swiss Army. Despite a full array of risk management tools and processes, Meyer remains concerned about risks yet to be identified.

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It was March 2018. Should proposed U.S. solar tariffs keep U.S.-based 1366 CEO Frank van Mierlo from starting up his 1st full-scale manufacturing plant overseas?

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In the summer of 2016, wearables “wunderkind” and Pebble founder and CEO, Eric Migicovsky, was pleased with the young startup’s success in the five years since its founding. The Silicon Valley–based company had recently shipped its two millionth smartwatch; held the record for three of the four highest Kickstarter campaigns ever (raising cumulatively over $40 million on the site); launched its first non-watch product dubbed a “wearables game changer”; and enjoyed a loyal customer base, particularly among technology early adopters and the community of software developers that created applications and watch faces for its products. Nonetheless, the young company faced a variety of challenges. The nascent smartwatch industry recently saw a dramatic uptick in competition. Apple had introduced its smartwatch the prior year, other established technology companies such as Samsung and Motorola offered smartwatches, U.S.-based fitness tracker Fitbit had recently launched its first smartwatch, and Chinese firm Xiaomi was soon to release a low-priced smartwatch. Migicovsky considers an array of strategic options as he looks ahead.

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