Tag Archives: Chicago Booth

Updates from Chicago Booth

What has happened over the past 40 years in the United States, particularly in cities?
By Veronica Guerrieri – It is well known that the US has experienced a large increase in income inequality, which, in my view, is one of the biggest problems of the US economy. At the same time, there has been an increase in neighborhood segregation, especially in larger cities: the rich are more and more concentrated in rich neighborhoods and the poor in poor neighborhoods. Alessandra Fogli of the Federal Reserve Bank of Minneapolis and I document a strong correlation between inequality and residential segregation.

The data show that cities with more segregation have a bigger education gap between the children of rich and poor families—and have less intergenerational mobility, which measures how hard it is to become rich if your parents are poor. In rich neighborhoods, it’s easier for kids to get a good education, and the return on education is higher. There are better schools, parents invest more in after-school activities, and there are stronger peers. This means that segregation amplifies inequality. At the same time, inequality increases segregation because richer people are happy to pay more to live in better neighborhoods. more> https://goo.gl/Qxi1wD

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Updates from Chicago Booth

How to split equity without drawing blood
By Mike Moyer – We live in a world where entrepreneurs and early-stage company participants get taken advantage of so frequently that we hardly notice. Bad equity deals are the rule, not the exception. Fairness is rare.

The intent for fairness is there in the way equity is split among business partners, but the practice of fairness is not. This is a correctable problem.

When a person contributes to a start-up company and does not get paid for her contribution, she is putting her contribution at risk with the hopes of getting a future reward. And, while the timing and the amount of the future reward is unknowable, the amount of the contributions at risk is knowable. It is equal to the fair market value of the contributions.

Because it’s impossible to know when or even if the rewards will ever come, we can never know how much people must put at risk to get the rewards. Every contribution, therefore, is essentially a bet on the future of the company, and nobody knows when the betting will end. more> https://goo.gl/F3ELyY

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Updates from Chicago Booth

Identify and rise above load-bearing assumptions
By Linda E. Ginzel – How could you build a really, really tall building without building really, really thick walls?

A man named William Le Baron Jenney came up with the answer. Jenney is widely recognized as the father of the American skyscraper, and according to Chicago lore, he had a breakthrough idea when he observed his wife placing a very heavy book on top of a tall metal birdcage. The cage not only supported the weight of the book, Jenney could see that it could have easily supported a whole stack of books. A stack of books piled high and balancing on a birdcage—what an image.

Jenney introduced the idea of a complete, steel skeleton, and he built the first fully metal-framed skyscraper in Chicago in 1884. Just as his wife used a birdcage to support the weight of a very big book, Jenney used metal columns and beams to support his building from the inside.

This story demonstrates the combined power of shedding a default assumption that weighed people down with making a major conceptual shift, which, in this case, provided architects the strength they needed to build higher.

Many of us face load-bearing assumptions, perhaps about management, strategy, finance, or leadership. For example, you may assume that the economic world is a zero-sum game.

Shedding assumptions is not an easy task because many have served you well in the past, and there is risk in abandoning them. Yet one of the most important skills that you can acquire is a willingness to question your load-bearing assumptions and make a different choice, when necessary. more> https://goo.gl/zR2hFR

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Updates from Chicago Booth

By Robert Shiller – The human species, everywhere you go, is engaged in conversation. We are wired for it: the human brain is built around narratives.

We call ourselves Homo sapiens, but that may be something of a misnomer—sapiens means wise. The evolutionary biologist Stephen Jay Gould said we should be called Homo narrator. Your mind is really built for narratives, and especially narratives about other humans. That is why advertisers tend to focus not on a product itself, but rather on somebody doing some human action related to the product.

Narratives are contagious: they spread from one person to another. Some narratives disappear quickly; others can last a long time.

The stock market gives us opportunities to construct narratives. For instance, earlier this year there were narratives around the Dow-Jones Industrial Average eclipsing 20,000 points for the first time in its history.

In reality, that’s absolutely meaningless: the Dow started at 40 points in 1896, but it could have started at 50, or something else. Yet we constructed narratives around this moment.

Why do narratives affect economics? Because when we want to understand a depression or recession, for instance, we have to understand why some people will stop spending. Recessions happen when people stop buying things: they don’t buy a new car; they don’t buy a new house. So why not? They might say they stopped spending because recession struck, but that doesn’t tell me why the recession started. I think the catalysts for events such as that are related to narratives. more> https://goo.gl/hjpU4r

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Updates from Chicago Booth

How sales taxes could boost economic growth
By Dee Gill – Many big economies are stagnating, and economists are running out of options to fix them.

The conventional monetary policy for encouraging spending has been to drop short-term interest rates. But with rates already near, at, or below zero, that method is all but exhausted. Some economists have also started to empirically and theoretically question the power of forward guidance, in which central banks publicize plans for future interest-rate policies, at the zero lower bound.

To create the rising prices that fuel higher wages and economic growth, central banks must convince consumers and companies to spend more money. But controversial asset-buying programs that brought down long-term interest rates have not also produced sustained price increases as hoped, and they have inflated central-bank balance sheets.

The idea that the threat of a sales-tax hike might stimulate stagnant economies has been around for some 25 years. But before the researchers homed in on the German VAT increase, economists had not documented such an effect in real life. more> https://goo.gl/exG06C

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Updates from Chicago Booth

What happened to your goals?
By Alice G. Walton – The problem with big resolutions is that motivation tends to wane over time, says Chicago Booth’s Ayelet Fishbach, who studies motivation and decision making. People start out strong, but then reality sets in as they realize it’s easier to set goals than to carry them out.

Research by Fishbach and others can help people salvage failed goals, or achieve new ones.

Every endeavor has a starting point and an end point, which can be as specific as meeting a work deadline in one week or as general as losing weight. One reason many people fail to reach their objectives, says Fishbach, is that they tend to set goals that are difficult or even impossible to achieve, or too general. Making them more concrete and achievable—goals you can envision yourself completing—may yield better results.

Yet effective targets should be ambitious. As long as the goal is within reach, the more you expect from yourself, the more you’ll achieve, as people often respond to a challenge by working harder. more> https://goo.gl/drSWPY

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Updates from Chicago Booth

Four ways to make hospitals more efficient
By Chana R. Schoenberger – Hospital patient records are being digitized, and financial, clinical, and outcomes data are piling up.

Medical devices attached to patients generate real-time information, as do health apps on patients’ own mobile phones and wearable devices such as Fitbits and Apple Watches.

All these data are enabling researchers to find and address inefficiencies in hospitals.

The end goal: help hospitals care for the sick while also being operationally and fiscally efficient.

As building and equipping a single hospital bed can cost $1 million, simply building more beds and hospitals is not a practical solution. Rather, strained hospitals have to use their existing resources more wisely. more> http://goo.gl/Rbnkba

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Updates from Chicago Booth

Hatred of commuting drives gentrification
By Alina Dizik – Over the last three decades, workers with master’s degrees who work more than 50 hours per week have migrated downtown and away from the suburbs because they’re unwilling to endure a long commute, according to the researchers.

Meantime, many unskilled jobs have slowly moved away from city centers.

It’s this shift in attitude and desire for more leisure time by the country’s top professionals that’s powering the wave of suburban flight, the researchers say.

For all workers, the average commute time rose by eight minutes per day, or 20 percent, from 1980 to 2009. And with leisure time diminishing, more workers are prioritizing shorter commute times than in the past. “Long hours render non-work time scarce, planting low-utility activities such as commuting in the cross-hairs,” the researchers write. more> http://goo.gl/i0Lpcd

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Updates from Chicago Booth

Many entrepreneurs don’t need subsidies
By Alina Dizik – Chicago Booth’s Erik Hurst and Benjamin W. Pugsley at the Federal Reserve Bank of New York point out that, according to their past research, financial success is only part of what motivates small-business owners, who generally earn less than they could in corporate jobs.

Their model predicts that people who value nonmonetary benefits will concentrate in industries where companies don’t naturally scale up, and where being small could even be a competitive advantage.

Policy makers need to understand better what small-business owners value, the researchers conclude.

Many mistakenly believe that small businesses are the engines of economic growth—and they write policies that may not actually further economic growth. Hurst and Pugsley suggest that subsidies may be less distortionary, and more effective, “if they were targeted at growth and innovation as opposed to being mostly linked to firm size.” more> http://goo.gl/m1AsPJ

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Updates from Chicago Booth

Digital ads are getting smarter. Are advertisers?
By Alina Dizik – Check out a pair of shoes online, and you may find them following you around: in a display advertisement parked in the margin of a news story, or in the otherwise minimalist corner of a search-engine results page, or perhaps in the subject line of an email.

That’s because digital advertising, and the technology that drives it, is evolving.

Paid search is internet advertising’s biggest stream of revenue, with nonmobile search alone generating $19 billion in 2014, according to the Interactive Advertising Bureau.

But Chris Nosko‘s research indicates that when eBay stopped paying for ads to appear during keyword searches that included its name—for instance, “eBay camera”—it nevertheless retained nearly 100 percent of the click traffic to its site. In the absence of paid ads, consumers could simply click on the nonsponsored search result linking to eBay instead.

.. the most accessible metrics are often also the most imperfect. When they paint a rosy picture of digital advertising’s impact, there could be a disincentive to chase more accurate measures.

“Most people would prefer not to be held accountable for business metrics over which they have limited control,” says Randall A. Lewis, a senior economic research scientist at Netflix who has worked for Yahoo and Google. “In digital advertising, we have a whole bunch of correlational metrics and a lot of them tell a positive story.” more> http://goo.gl/D8QaZO

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