Costello College of Business Faculty Research

ISOM Faculty Research

When CEOs are haunted by memories of past recessions

Jennifer Anzaldi — Tue, 12 Nov 2024 19:43:41 +0000

When CEOs are haunted by memories of past recessions Jennifer Anzaldi Tue, 11/12/2024 - 14:43

In This Story

David Koo

The economy, we’re often reminded, is cyclical. But we all hope our careers won’t be. That means those of us who make it to the very top—CEOs, for instance—may be unduly influenced by memories of prior economic go-rounds. David Koo, assistant professor of accounting in the Donald G. Costello College of Business at ��AV, has found that memories of past recessions, triggered by recent ones, can weigh on chief executives’ decisions, literally for years.

Koo’s paper, co-authored by Isabel Wang of Michigan State University and Shuting Wu of Cal State Fullerton, is forthcoming in Management Science.

David Koo

The paper was inspired by trends in research outside the accounting field. “In the economics area, they have started looking at how executives’ memories of recessions can affect important decision-making right now,” Koo says. “We are trying to connect these emerging trends to the accounting area by focusing on pessimistic bias in their outlook of the company’s performance.”

The researchers adopted the 2008 financial crisis as a key moment for triggering veteran CEOs’ memories of prior financial downturns. They analyzed annual management earnings forecasts for U.S. public companies for the period 2002-2018, alongside the characteristics and career histories of the CEOs who issued them. “We used the first forecast of the year for each year, because on average these are more optimistic,” Koo explains. “Usually, nobody wants to say anything negative at the beginning of a year.” The final data-set comprised 3,678 earnings forecasts from 466 CEOs.

Koo and his co-authors discovered that CEOs who had previously led companies through at least one past recession issued significantly more pessimistic forecasts post-2008 than they had before the crisis. As a general rule, the more recessions a CEO had undergone in their tenure at the top, the more pessimistic their post-crisis forecasts tended to be.

The same pessimistic pattern was not evident for CEOs who had not experienced a recession before 2008. Translating their findings into economic terms, the researchers concluded that one standard deviation of the memory-triggered pessimism effect was equivalent to 0.23-0.29 percent of share price.

Further, the post-crisis pessimism did not make the forecasts more accurate. It’s safe to say, then, that the memory-triggered CEOs were, knowingly or not, displaying excessive caution and conservatism in their earnings forecasts. To be sure, anyone’s outlook can darken with age, independent of their real-world experience. So the researchers performed subsequent checks to determine whether the increased pessimism was more closely related to growing older, or to specific memories of past recessions.

“Our takeaway is, if we have two same-age CEOs, one who has experience navigating recessions as a CEO and one who does not, the first one will become more pessimistic after the crisis,” Koo says.

The more highly skilled CEOs (as measured by a widely accepted scale for managerial ability) exhibited less memory-induced pessimism, while CEOs who led more complex firms with a lot of moving parts were more prone to pessimism. “We expected that the manager-specific effect would be more significant when managers were under more demanding pressure or had more discretion,” Koo explains.

As the 2008 financial crisis itself faded into memory, seasoned CEOs gradually let go of their pessimistic bias. But it took three years, on average, for their forecasts to fully recover. We normally think of past experience as an aid to learning, but here it seems that the opposite was the case: Memories of past experiences with recessions slowed down CEOs’ post-crisis learning process.

“Prior research has found that past experiences can help people more rationally and then more wisely handle an ongoing crisis,” Koo says. “But at the same time, executives are also human beings. They may be scarred by their experiences and that can induce them to be excessively negative or pessimistic when they go through a financial crisis.”

Of course, that doesn’t mean that the veteran CEOs were less effective at guiding their firms through post-crisis recovery. Koo emphasizes that his findings do not capture whether, and how quickly, companies bounced back from the 2008 recession.

“Memory may not be the most dominant factor in our decision-making, but it still can influence executives even in their managerial decision-making,” Koo advises.

The lesson, then, is one for investors and other market players to store in their own memories for the next economic downturn: Take CEOs’ post-crisis predictions with at least a grain of salt.

Topics

Accounting Faculty Research

MS in Finance students answer burning investment questions

Jennifer Anzaldi — Tue, 22 Oct 2024 17:08:48 +0000

MS in Finance students answer burning investment questions Jennifer Anzaldi Tue, 10/22/2024 - 13:08

In This Story

Derek Horstmeyer

��AV Master of Science in Finance students have the rare opportunity to use their budding analytical skills to solve some of the mysteries of today’s financial markets. Moreover, their faculty-supervised research projects can land their names in the pages of The Wall Street Journal.

To date, these projects have spawned nearly 40 WSJ articles, not to mention dozens of write-ups in outlets such as MarketWatch, The Conversation, and the CFA Institute blog. They have also received television coverage on CNN and NewsNation.

SMIF officers Yashkaran Sidhu, Jonathan Pino, Matthew Rickard, Raheeg Joari, and Reema Hammad at the Chicago SMIFC conference.

As Costello College of Business finance professor Derek Horstmeyer tells it, the process started taking shape organically. “I had started writing for the CFA and The Wall Street Journal. In my talks with my students, some of them revealed they had research interests. It just kind of took off from there—I would bring it up in class and offer to supervise a research project that would last about a week.”

Student researchers are mainly recruited from Horstmeyer’s Montano Student Managed Investment Fund (SMIF) class, a hands-on exercise in security analysis and portfolio construction that serves as a capstone to the MS in finance degree.

While many student research projects originate with questions suggested by the students themselves, Horstmeyer helps the student teams devise their scope and direction.

“They might say, for example, that they’re interested in crypto. So I’ll show them previous articles on crypto and we kind of develop a new idea from there,” Horstmeyer says.

By the time they get to SMIF, students are usually comfortable getting their hands dirty with data. Finding the appropriate data-set for the question they’ve posed, however, can be a challenge. That’s another area where Horstmeyer’s support becomes critical. “The big bottleneck is they just don’t know where the data is,” he says. “We as faculty have access to these private databases. So I’ll guide them or set up the data.”

Horstmeyer also introduces the student teams to the best methods for parsing the data, while leaving students enough leeway to conduct independent follow-up analyses if needed.

Of the dozens of projects completed thus far, there are a few that, for Horstmeyer, typify the process at its best. For example, finance students Matthew Rickard and Camila Marín Builes investigated how stock-market trends fare once they have been familiarized enough to warrant a nickname. Among the eight named trends included in the study were FAANG (Facebook, Amazon, Apple, Netflix and Google), and “The Magnificent Seven” (Nvidia, Tesla, Meta, Apple, Alphabet, Amazon, and Microsoft).

“We did an extensive Google search to find the biggest named trends. Then we used the Wayback Machine to figure out when the trend was first coined, like the exact date. We did all sorts of tests to determine what kind of abnormal returns you can expect if you stick with that trend,” Horstmeyer explains.

The students found that newly christened trends experience an extended honeymoon period of about 12 months, amounting to an average of 13 percentage points in excess returns. But in their second year, trends start to go stale, underperforming the S&P 500 by an average of two points.

The Wall Street Journal published Horstmeyer’s article “Once a Hot Stock-Market Trend Has a Name, Its Best Days Are Likely Past”—published under his byline with the student researchers mentioned by name early on—in March 2024.

Horstmeyer says that participating in these projects helps students hone skills and techniques that enhance their careers and give them a competitive edge in the job market. “I get employers reaching out and saying, ‘I saw this line item on a candidate’s resume saying they did some pretty high-level data analysis for you. Is it true?’ They’re kind of surprised the student contributed to the CFA or a Wall Street Journal article.”

Melvin Jonathan Reyes Echeverria, who completed his MS in finance degree in May 2024, says, “I assisted Professor Horstmeyer with data analysis for the WSJ and the experience was amazing…I was able to leverage everything that I was taught in my MS in finance classes. It was a privilege to be published and something that was unexpected to receive at George Mason.”

Topics

Master's in Finance Program

Finance Faculty Research

Students

The work-from-home blues have a secret source: nostalgia

Jennifer Anzaldi — Thu, 19 Sep 2024 14:25:23 +0000

The work-from-home blues have a secret source: nostalgia Jennifer Anzaldi Thu, 09/19/2024 - 10:25

For at least two years, CEOs have been trying to bring employees back to the office, citing remote work’s supposed negative effects on productivity, morale, and creative collaboration. Managers, we’re told, are having a hard time monitoring and motivating dispersed teams. But what if bringing employees back to the office won’t put the genie back in the bottle?

Kevin Rockmann, professor of management at the Donald G. Costello College of Business at ��AV, argues that the furor over remote work masks deeper cultural issues at play in many organizations. This cultural malaise has employees pining for an imagined past where they felt grounded and connected with their colleagues. In short, remote workers aren’t unmanageable—they’re suffering from pangs of nostalgia.

Kevin Rockmann

Rockmann’s recently published research paper in Journal of Management (co-authored by Jessica Methot of Rutgers University and Emily Rosado-Solomon of Babson University) documents the results of surveys conducted during the height of Covid (September 2020). The thrice-daily surveys were delivered over a two-week period to 110 full-time professionals. Respondents were asked to report on their feelings of nostalgia, as well as emotional coping strategies, task performance, and counterproductive work behaviors (e.g. withholding support from colleagues and stealing time from their employer).

The overwhelming majority of participants (98 out of 110) admitted to experiencing nostalgia for life before Covid. And these feelings could have either positive or negative outcomes, depending on how the respondents dealt with them. Rockmann points to two pathways that showed up across the surveys as a whole, which he labels “approach” and “avoid.”

One way respondents reacted to nostalgia was to use so-called “cognitive change” strategies, which help regulate emotions through shifts in perspective. For example, someone feeling sad about being trapped at home during the pandemic could think to themselves, “It could be so much worse. At least I don’t have Covid like so many others.” These strategies seemed to evoke empathetic responses, leading the survey participants to reach out to colleagues to check in or offer assistance.

Equally prevalent in Rockmann’s results, however, was a much darker pathway. Instead of reaching out to others in response to nostalgia, respondents tended to turn inward in an attempt to minimize the emotional discomfort. Psychological researchers call this sort of reaction “attentional deployment.” “It’s a defense mechanism whereby you don’t feel you have the means to really connect with others, so you leverage your attention away from the source of pain,” Rockmann explains. This pathway led to incidents of “acting out”—the above-mentioned counterproductive work behaviors.

Rockmann says these Covid-era findings remain relevant for at least two reasons. First, survey respondents’ written comments sound like they could have been written yesterday, rather than four years ago. Common nostalgic themes revolved around co-workers, the structure of co-located work, etc.—all oft-heard plaints of remote workers in 2024. Second, the normalization of remote work well predated Covid—as Rockmann’s past research on the topic has documented. Covid accelerated an inevitable transition that was already well underway. Therefore, workers of a certain age would likely be feeling some nostalgia, even if there had never been a Covid pandemic.

“While return-to-office may make sense for some companies, I would emphasize that nostalgia cannot be fixed that way. Nostalgia is about longing for the past—or, more accurately, longing for a return to how we remember the past, usually through rose-colored lenses.”

How can organizations help employees conquer nostalgia, or at least encourage healthier ways of coping with nostalgia? The obvious answer might be what CEOs are trying to do—end remote work altogether. “While return-to-office may make sense for some companies, I would emphasize that nostalgia cannot be fixed that way. Nostalgia is about longing for the past—or, more accurately, longing for a return to how we remember the past, usually through rose-colored lenses,” Rockmann says.

Any political demagogue will tell you that people are most susceptible to nostalgia when they feel isolated and afraid. The fact that nostalgia is so widespread in today’s workplace would seem to confirm Rockmann’s past research showing how organizational cultures fail to promote positive relationships among employees.

Combating the nostalgia epidemic will require a cultural reset for many organizations. “Managers will need to engage much more closely with employees, asking sensitive questions (e.g. “What do you miss about working here before Covid?”) and co-creating individualized solutions to help employees fully adjust to the major changes in their working environment,” Rockmann says.

Explore research at Costello College of Business

In This Story

Kevin Rockmann

Topics

Management Faculty Research

When expressing gratitude, it’s all in the timing

Jennifer Anzaldi — Wed, 04 Sep 2024 14:42:32 +0000

When expressing gratitude, it’s all in the timing Jennifer Anzaldi Wed, 09/04/2024 - 10:42

Thanks so much for reading this article all the way to the end! No, that wasn’t an editorial error. It’s a savvy managerial motivation strategy lurking somewhere in almost every employee’s inbox or Slack channel.

Mandy O’Neill, an associate professor of management at the Donald G. Costello College of Business at ��AV, has discovered a potential new addition to the annals of managerial motivation techniques: anticipatory gratitude.

Mandy O'Neill

We all know that thanking people for a job well-done, or a much-needed favor, is an effective form of positive reinforcement. Psychology researchers classify gratitude as a “socially engaging emotion” that promotes prosocial behavior and strong interpersonal relationships. In the course of exploring how employees cope with high-stress or frustrating work situations, O’Neill and her co-author Hooria Jazaieri of Santa Clara University discovered an interesting wrinkle in what we thought we knew about this popular emotion: Gratitude can be used as a form of emotion regulation and, when expressed ahead of time instead of after the fact, can produce that extra “oomph” when it comes to employee resilience and persistence.

Their paper is in press at Academy of Management Discoveries.

The researchers stumbled upon the power of anticipatory gratitude while researching organizational culture and change within the intensive care units of a leading U.S. hospital. It’s difficult to imagine a more gut-wrenching, high-stakes work environment: The ICU units in question receive what one employee called “the sickest of the sickest” from throughout the region. To decompress and process their emotions after especially difficult shifts, employees routinely emailed the group using an internal listserv. O’Neill and Jazaieri were forwarded four years’ worth of messages, which they analyzed with the help of direct experience gained from extensive site visits to the hospital.

In addition to writing heartfelt outpourings of post facto gratitude, ICU colleagues thanked one another for rising to occasions that had not yet occurred. Some of these emails were pre-emptively apologetic (“I may have to take a day or two off from time to time…Thank you for your patience and understanding”). Others seemed to function as pep talks, inspiring teams to keep up the good work (“Thank you…for bringing your a-game to work every day”).

As O’Neill describes it, “The ‘thanks in advance’ phenomenon involves an awareness that you’re going to be annoyed or upset by what I’m asking you to do, so I infuse you with the positivity of that feeling you get when someone expresses gratitude to you. Think about it as an emotional buffer. It helps with the inevitable distress of the task that’s going to happen later. It makes those negative emotions less salient, less powerful, and less insidious.”

The researchers launched several follow-up studies to learn more about the effects of anticipatory gratitude. They chose a context—Amazon’s Mechanical Turk (MTurk) gig-work platform—that was in many ways the polar opposite of the ICU. “You go from the ultimate interdependent work environment to the ultimate transactional work environment,” O’Neill explains.

“The ‘thanks in advance’ phenomenon involves an awareness that you’re going to be annoyed or upset by what I’m asking you to do, so I infuse you with the positivity of that feeling you get when someone expresses gratitude to you. Think about it as an emotional buffer."

The MTurk workers were assigned to solve extremely difficult puzzles. After completing the paid task, they received negative feedback about their performance and were offered the opportunity to do additional puzzles without being paid. MTurkers who had seen a message of gratitude before the main task voluntarily took on significantly more unpaid work than those who received a similar message after the paid exercise.

“What’s so compelling and surprising for us is that anyone who does work with experienced online gig worker populations knows it’s nearly impossible to induce workers to go beyond their assignment, even by 30 extra seconds, which is about what we were asking for,” O’Neill says.

Questionnaires administered during the study revealed that anticipatory gratitude enhanced feelings of communal self-worth, which contributed to the participant’s resilience, that is, their ability to “bounce back” after the initial failure. In a third study, the researchers found anticipatory gratitude was better than a related positive affect—anticipatory hope—at motivating MTurkers to persevere at (i.e., spend more time on) a different set of challenging puzzles.

At this point, the potential for managerial manipulation should be crystal clear. Indeed, it was evident even to some of the gig workers, who wrote private messages such as, “It may be partial trickery for academic purposes but it was still nice to hear.”

"Gratitude can’t be a substitute for fair pay and decent work conditions...But our findings are clear: anticipatory gratitude works; it is effective.”

For O’Neill, these findings show that gratitude is more complicated than we previously thought. “This paper is one of the very few to show that gratitude isn’t always authentic and prosocial. It can be used strategically, especially for managers,” she says.

Sincerity and strategy are not mutually exclusive. Empathic managers whose feelings of gratitude are so strong that they have to be expressed beforehand could still be taking advantage of the “thanks in advance” phenomenon.

“In all organizations, you need people to stick with difficult or thankless or boring tasks. The challenge, of course, is how to do so ethically. Gratitude can’t be a substitute for fair pay and decent work conditions, for example. But our findings are clear: anticipatory gratitude works; it is effective,” O’Neill says.

In This Story

Olivia (Mandy) O'Neill

Topics

Management Faculty Research

Mason Momentum

GenAI brings us closer to automating investment expertise

Jennifer Anzaldi — Thu, 22 Aug 2024 18:39:34 +0000

GenAI brings us closer to automating investment expertise Jennifer Anzaldi Thu, 08/22/2024 - 14:39

In This Story

Yi Cao

Long Chen

Large language models (LLMs) such as ChatGPT and Google Gemini excel at being trained on large data-sets to generate informative responses to prompts. Yi Cao, an assistant professor of accounting at the Donald G. Costello College of Business at ��AV, and Long Chen, associate professor and area chair of accounting at Costello, are actively exploring how individual investors can use LLMs to glean market insights from the dizzying array of available data about companies.

Long Chen and Yi Cao

Their new working paper, co-authored with Jennifer Wu Tucker of the University of Florida and Chi Wan of University of Massachusetts Boston, examines AI’s ability to identify “peer firms,” or product market competitors in an industry.

Cao explains the significance of selecting peers by relating this process to the real-estate market. “The capital market is similar to the real-estate market in that a firm’s value is partially determined by the value of its peers. In the real-estate market, we price a home based on the value of comparable properties in the neighborhood, or the so-called 'comps.' In our paper, we aim to leverage the power of LLMs to identify comps for evaluating firm value.”

This task is at least as difficult as it is essential. It takes much time, skill and effort to gather, aggregate and manage data to select peers. However, the researchers reasoned that LLMs could do a lot of the heavy lifting of data aggregation and analysis for the individual investors, and produce a list of peers comparable in validity to that identified by human experts.

“The advantage is in the capability to utilize all the information potentially out there so that it is at least performing as well as other traditional methods that can help us investors and researchers,” says Cao.

For the study, Chen and Cao employed Bard from Google, now known as “Gemini,” as their LLM of choice because “Bard has a greater ability to utilize its pre-training data, which is arguably larger than ChatGPT’s and with more parameters,” says Cao.

After defining “product market competition” and forming a prompt for Bard, the researchers instructed Bard to limit its knowledge pool to a specific year within the period 1981-2023, in order to avoid “look-ahead bias,” i.e., future information scrambling the results.

“We need to understand that LLMs are actually a very powerful, new tool, unmatched in their efficiency, ability to process vast amounts of information at a low cost, and accessibility to the general public.”

They limited focal firms to large, publicly listed companies as there is less data out there for smaller or private firms. In all, the data-set comprised over 300,000 focal firm-years.

On average, the LLM could generate about seven peer firms for a focal firm, a number that is similar to the SEC recommendations on how firms should disclose their segments.

The researchers then compared the LLM’s performance to the lists generated by three human experts for a set of 40 leading computer software companies. The average overlap was a little over 40 percent, greater than expected.

They also compared the AI-identified peer lists to two alternative systems for identifying peers: the federal government’s Standard Industrial Classification (SIC) codes and Text-based Network Industry Classification (TNIC), which compares firms based on linguistic similarities in their 10-K filings. The LLM’s output overlapped significantly with TNIC’s. Plus, the peers identified by the LLM were generally a better fit than those from SIC and TNIC, as their monthly stock returns hewed closer to the focal firm.

But TNIC outperformed the LLM in identifying peers for mid-sized firms within the sample, indicating that it is not a clear-cut case of universal LLM superiority.

“It’s especially beneficial for individual investors—as all the cost concerns that we’re talking about are especially relevant for them,” Chen adds.

Regarding the future of LLM, Chen states, “There are always costs and benefits associated with using generative AI. It is uncertain whether current systems will soon be obsolete.” When asked about the SEC adopting an AI tool for investors, Chen emphasizes that users need to understand the pros and cons of using AI to make their informed judgments “because AI cannot be held responsible for the information it provides or for how it is utilized.”

Chen concludes, “We need to embrace this new technology, but we must recognize that it is not yet in a perfect state. Competition to improve the technology is fierce. Our findings might just represent the lower bound of the effectiveness of the technology.”

Topics

Accounting Faculty Research

Artificial Intelligence

How this summer’s heat waves may impact the economy

Greg Johnson — Tue, 06 Aug 2024 13:39:44 +0000

How this summer’s heat waves may impact the economy Greg Johnson Tue, 08/06/2024 - 09:39

This sweltering summer has brought record-breaking high temperatures to 63 countries, all but cementing 2024’s status as the world’s hottest year on record (even though we’re barely past the halfway point). Such extreme weather trends are bound to have serious implications for the environment, public health, and the economy.

Joseph (Han) Stice

Why, then, aren’t economic indicators flashing bright red? Joseph (Han) Stice, assistant professor of accounting at the Donald G. Costello College of Business at ��AV, has run the numbers on business and climate change. His recent working paper, co-authored by Marcus Kirk of University of Florida and Derrald Stice of University of Hong Kong, paints a picture of profound climate-related disruption underneath the placid-seeming surface of the economy.

For the years 1990 to 2020, the researchers compared quarterly sales performance from a large sample of U.S. firms to the temperature data at their base of operations. In this way, they constructed a measure of weather sensitivity, which they termed “weather beta,” for each company in the initial sample. Specifically, they were looking at whether sales either benefited or suffered when local temperatures were higher or lower than the “ideal” of 65 degrees Fahrenheit.

“What they—they being the people who examine temperature—say is that if it’s above 65, you turn on your air conditioning. If it’s below 65, you turn on your heater,” says Stice.

After restricting the sample to only those firms with discernible weather beta, they ended up with a data-set comprising 66,795 firm-quarters.

Across the sample as a whole, the results were a misleading nonstarter. Weather fluctuations did not seem to have an impact on economy-wide sales, one way or the other.

This was no surprise to Stice. Citing past research, he points out that “the overall economic effect is that colder weather is, on average, better. But that’s not true in every single instance. Some industries (i.e., agriculture) benefit from hot weather. And it also depends on what region you’re in, what time of year it is, etc.”

“We need to have a national discussion and a global discussion,” Stice says. “But the people who really matter are the local leaders, as far as climate is concerned. The people you elect on the local level are going to have a much greater impact on how you respond and how your companies can adjust, than whether or not your candidate is in the White House.”

To gauge actual impact, the researchers split the sample by size and geographic concentration, presuming that larger firms with a wider geographic footprint would be less affected by temperature changes at home base. These differences between firms proved to be critical. For the smallest, most localized firms, a swing from the 75th to the 25th percentile in terms of nonideal temperature meant 8.8-15.9% lower sales. The biggest and most sprawling firms saw sales declines of just 4.3-5.6% from an equivalent shift.

Stice clarifies that “we are talking about very small deviations, like percentages of degrees on average per day over an entire quarter. If it were one degree hotter than 65 degrees every day, that would come up in our measure as a 90. The biggest number we have is like a 25 or a 30.”

Also, sales impact tells only part of the story. The sheer size of the data-set allowed Stice and his co-authors to predict quarterly sales performance for individual firms, based on the weather and firm characteristics. On average, actual sales declines were about half as severe as predicted. The researchers speculate that firms were able to soften the blow of immoderate temperatures by adjusting their business practices. The time and resources spent on these adaptations are part of the hidden economic costs of climate volatility.

If firm managers can anticipate how the weather can impact business outcomes, you would expect financial analysts to be at least as attentive to climate effects. However, the researchers found that sales forecasts made shortly before earnings announcements were thrown off by abnormal temperatures in the previous quarter, with 7.4% inaccuracy in the mean. Similarly, the researchers found that weather impact was positively correlated with announcement-period stock market returns. Apparently, even professional investors are being caught off guard by the subtle but costly interactions between climate and economic activity.

For more accurate appraisals, Stice suggests we should turn to the local level. He notes that his measures of firm-specific weather sensitivity happen to line up fairly neatly with municipal self-assessments made by local governments as part of the Carbon Disclosure Project.

Empower your future with Costello College of Business

In This Story

Han Stice

Topics

Accounting Faculty Research

Scared to negotiate job offers? Do it anyway. Here’s why.

Jennifer Anzaldi — Tue, 16 Jul 2024 14:17:48 +0000

Scared to negotiate job offers? Do it anyway. Here’s why. Jennifer Anzaldi Tue, 07/16/2024 - 10:17

Getting a job offer can be a joyful experience. Often, however, the elation quickly gives way to a state of anxiety, as candidates agonize over whether to accept the terms on the table, or negotiate for better ones. After all, it’s commonly believed that job candidates who negotiate, risk losing the opportunity.

Einav Hart

Einav Hart, assistant professor of management at the Donald G. Costello College of Business at ��AV, challenges that assumption in a recent research paper for Organizational Behavior and Human Decision Processes. Her findings suggest that the expected worst-case scenario—having a job offer rescinded—may be a much more remote possibility than most job candidates believe.

The paper was co-authored by Julia Bear of Stony Brook University and Zhiying (Bella) Ren of University of Pennsylvania.

The researchers conducted seven studies involving more than 3,000 participants. To start with, they surveyed job candidates, hiring managers, and experienced professionals. These surveys showed that job candidates thought it highly likely that negotiating would lose them the job offer, while managers took a more flexible view. The hiring managers reported extending an average of 26.9 job offers during their careers, only 1.73 of which were withdrawn after a candidate negotiated.

In subsequent studies using in-person and online negotiations, Hart and her co-authors found that even taking on an imaginary role changes how one views the negotiation and its risks. They randomly assigned participants to play either a “job candidate” or a “hiring manager,” with real money at stake based on any agreed-upon job offer.

The researchers found that two psychological mechanisms were particularly relevant to explain job candidates’ exaggerated risk estimation: zero-sum perceptions, or the idea that parties in a negotiation are fighting over a fixed and finite resource, and power perceptions, i.e., how much candidates felt they had the ability to influence the hiring manager. Moreover, because of their concern about losing the deal, nearly half the candidates chose to accept the offer as is and not to negotiate.

All else being equal, candidates tended to take a much more competitive (i.e., zero-sum) view of negotiations and a less optimistic view of their power than did the “managers.” This may help explain why so many of us shy away from bargaining for better job offers, to our own detriment.

Hart says that “negotiating is not just zero-sum. Besides negotiating salary, maybe you care more about teleworking than a small signing bonus. The hiring manager might really appreciate the savings and be flexible about how often you come into the office. Thus, this negotiation (and many others) can have a win-win, mutually beneficial solution.”

Indeed, candidates primed to consider negotiation as a potential win-win interaction (as opposed to zero-sum) were less likely to fear losing the deal entirely, and by extension to forgo negotiations. Likewise, candidates primed to have higher power perception were less concerned about jeopardizing a deal and less likely to forgo negotiation. However, even with low zero-sum or power perceptions, candidates still overestimated their risk of losing the deal.

“Besides negotiating salary, maybe you care more about teleworking than a small signing bonus. The hiring manager might really appreciate the savings and be flexible about how often you come into the office. Thus, this negotiation (and many others) can have a win-win, mutually beneficial solution.” —Einav Hart

At the same time, Hart’s prior work suggests that negotiation is a decision that should be made carefully by each party. A previous paper introduced the concept of “Economic Relevance of Relational Outcomes” (ERRO), which points to the fact that there is often a long-term financial advantage in preserving strong relationships, over and above incremental gains to be won in any one negotiation.

Hart says, “Consider negotiating for a babysitter’s rate. What use is negotiating for a great deal on the rate if the babysitter feels bullied in the negotiation and is not excited to take care of your kids?”

Negotiating a job offer is tough and there is a legitimate risk that negotiating can jeopardize the deal. However, Hart’s research suggests that job candidates overestimate this risk and can often obtain better outcomes through negotiating a job offer—at least if they preserve a good relationship.

Looking for more advice? Check out Career Services!

In This Story

Einav Hart

Topics

Management Faculty Research

The NYPD gave officers iPhones. Here’s what we learned about race and policing

Jennifer Anzaldi — Tue, 04 Jun 2024 16:50:43 +0000

The NYPD gave officers iPhones. Here’s what we learned about race and policing Jennifer Anzaldi Tue, 06/04/2024 - 12:50

In This Story

Brad Greenwood

The controversy about biased policing seems to draw endless fuel from race-based differences in public perception. Simply put, the vast majority of White citizens in the United States believe the police are doing a good job, including on issues of racial equality, while a similar percentage of Black citizens hold the opposite opinion. And while a growing number of studies have indicated persistent patterns of racial discrimination in policing, an emergent concern among scholars is that the data these papers rely on are also subject to baked-in biases, since they often derive from officers’ self-reports of their own behavior.

Brad Greenwood

Enter Brad Greenwood, professor of information systems and operations management at the Donald G. Costello College of Business at ��AV. One of his research interests lies in how digital technologies are bringing unprecedented transparency to police practices. For example, Greenwood’s 2022 paper documented how the introduction of body-worn cameras for the New York Police Department (NYPD) resulted in a significant reduction in abuse-of-authority complaints.

His latest work on policing is forthcoming in Proceedings of the National Academy of Sciences. Along with Gordon Burtch from Boston University and Jeremy Watson from the University of Minnesota, Greenwood examined the recent rollout of iPhones across the NYPD, which included a series of digital tools designed to replace the handwritten memo books officers previously relied on. Instead of scribbling in the physical books, which NYPD officers were required to hang onto even into retirement, officers could log their activities directly into a centralized database maintained by the NYPD. These detailed digital records shed fresh light on how cops spend their time—and attention—on the beat.

The researchers tracked data on NYPD stops and complaints in 2017 and 2018, the period when iPhones were being rolled out across precincts in New York City. A curious pattern emerged. There was an 18% increase in reported stops after a precinct received iPhones, which would be consistent with the digital tools making it easier for officers to report a citizen interaction. Further, the researchers discovered that this increase resulted in neither more arrests nor more complaints from the public. It wasn’t, therefore, that the phones were somehow causing the police to stop people more often, but rather that so-called “unproductive stops”—those leading to no further action—were being reported more often.

However, when breaking the results down across White and non-White citizens, the researchers found that unproductive stops involving non-White citizens were entirely responsible for the increase. In other words, the observed changes were based on police encounters with non-White members of the public, that would likely have gone unreported in the days of pen and paper. More specifically, after switching to the smartphone system, officers logged 22% more stops involving non-White citizens, while the number of reported stops of White citizens remained unchanged. These are statistical averages—the pattern was more marked in high-crime neighborhoods and those with a greater proportion of non-White residents.

Greenwood offered an interpretation of the finding: “The concern here is that we have an underreporting, which is concentrated in certain groups and means that we need to be cautious when interpreting prior work. On the one hand, it opens the door to bias in police interactions with civilians being worse than initially anticipated, at least based on the frequency of stops. On the other hand, it could mean that older data doesn’t accurately reflect the likelihood of an arrest once a stop occurs. And we need to be doubly cautious, because we don’t know if officers are reporting stops more frequently just because it is easier, or for some other reason.”

Greenwood cautions against making sweeping conclusions based on the study. “The only thing we know for sure is that more and deeper work is needed by scholars and policy makers to ensure transparency between law enforcement and the people they are charged to protect,” he said.

On the whole, however, the study raises the possibility that race-based disparities in policing are not only very real, but may have been underestimated thus far because of reporting gaps.

As police officers are not obligated to document all civilian interactions, their decisions regarding what—and what not—to report can be biased. The introduction of new technology, as in the case of the NYPD, can help counter such biases, but is not the only avenue worth pursuing. The researchers recommend that police departments “investigate the appropriate organizational complements (i.e., policies and procedures) necessary to uncover and eliminate such biases.”

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