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Winter 2004 CalBusiness  
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Faculty Provide Fresh Insight in Marketing, Public Policy, and Organizational Behavior

By Ute Frey

Seven new faculty members joined the Haas School in the fall of 2003. Hai Che, Ernesto Dal Bó, and Hillary Anger Elfenbein are featured below. More faculty will be featured in the Summer 2004 issue of CalBusiness.

Che Sheds Light on Consumer Choice

Ever clipped a coupon for your breakfast cereal? Probably not. As Assistant Professor Hai Che will confirm, even when cereal prices were high, consumers would not reach for a different box of breakfast cereal just because it was a few cents cheaper. But did cereal manufacturers realize this and adjust their prices?

These are the kinds of questions the newly minted assistant professor of marketing is addressing in his research. He joined Haas from the Olin School of Business at Washington University in St. Louis, with a Ph.D. in marketing.

The pricing of ready-to-eat breakfast cereals has raised many questions, including at the Federal Trade Commission (FTC). In the 1980s and early 1990s, consumers complaints about the high prices in the cereal market. If consumers were price-sensitive, it was believed, cereal manufacturers should be charging lower prices in order to compete for market shares. Since they were not, they were accused of collusive pricing and became subject to an FTC investigation.

In trying to determine whether cereal consumers really are price sensitive or not, Che found that segmenting cereal consumers into groups based on their purchase behavior — whether they stay with their familiar brand or seek variety — provided a more accurate picture and showed that consumers are less price sensitive than assumed.

It follows that the stronger consumers’ loyalty to their purchase behavior, the more cereal manufacturers could raise prices without worrying about losing consumers.

Che then studied the nature of marketers’ pricing behavior and strategic interaction. He learned that when ignoring the different kinds of consumer behavior, market data suggests price collusion. However, when taking consumers’ loyalty to their purchase behavior into account, the pricing appeared to be competitive, rather than collusive.

For his research, Che draws heavily on his training in economics. Originally from China, he studied finance at Fudan University in Shanghai and did research on how to make the Chinese currency convertible during the economic reform in 1992. After arriving at the Department of Economics at the University of Toronto on a scholarship, he became more interested in industrial organization and decided to apply his training in game theory and econometrics to pursue answers to elusive marketing problems.

"The change worked out well," says Che, referring to the switch from finance to marketing, because it paved his way to Berkeley. "The marketing group at Haas is one of the best in the world. Each professor is one of the best in his or her field, and they are all really active researchers."

Dal Bó on Bribes, Punishment, and Public Policy

From Buenos Aires to Washington, DC, bribes and threats can significantly influence public policy decisions. Exactly how public officials are affected by these forces is the focus of Ernesto Dal Bó, who came from Oxford University to join the Business & Public Policy group as assistant professor.

Originally from Argentina, Dal Bó is concerned with the phenomenon of corruption and political influence.

Dal Bó uses game theory to model how groups successfully exert pressure on public officials not only by bribing them but also by subjecting them to smear campaigns, judicial harassment, or even violence. "Most economists don’t make a distinction between bribes and coercion," says Dal Bó. "However, my work shows that the two have very different impacts."

The power of coercion, according to Dal Bó, can cripple a country’s political system. Dal Bó’s research is the first to prove analytically that societies where violence is rampant are more corrupt. "Our model provides an explanation of how those two phenomena — violence and corruption — relate to each other."

According to some media reports, the going rate to have a person killed in some Latin American cities is about $800. "Given that reality [that assassination is so inexpensive]," says Dal Bó, "do you think the mayors of those cities make their own decisions?" Furthermore, Dal Bó found that coercion in politics makes political careers highly unattractive to a country’s young talent. Public policy decisions are then made by less talented or less skilled individuals.

These findings are presented in a series of papers: "Capture by Threat," published in the Journal of Political Economy, and "Plata o Plomo: Crime and Punishment in a Theory of Political Influence."

An overarching concern with democratic politics led Dal Bó to examine societies’ reliance on collective decision-making bodies, such as committees or parliamentary assemblies.

Common wisdom has it that groups are more difficult, or more expensive, to influence than individuals. In his paper, "Bribing Voters," however, Dal Bó demonstrates that through special incentive schemes a special interest group can at no cost manipulate a group’s collective decision made through voting and induce inefficient or undesirable outcomes.

The paper also provides a framework for how bribes and influence affect observable and unobservable (or secret) votes. "This explains a real life contrast," says Dal Bó, "while votes are secret in general elections, they are public in legislatures." Dal Bó’s model shows that because the public voting requires higher bribes to manipulate a legislator the electorate tends to benefit more from observable votes rather than the bribers do.

Finally, Dal Bó shows that the use of assemblies to direct policy decisions can help reduce policy uncertainty. Supermajority voting rules (requiring more than 50%) help societies achieve a compromise between the need to commit to certain policies while retaining the flexibility to adapt them to changing times, Dal Bó explains. Since supermajority rules induce a bias toward the

status quo, a central bank, for example, might require a supermajority for decisions on money supply to favor a more conservative policy.

Elfenbein Explains Emotion in the Workplace

Emotions are not only a fact of life and a reality in the workplace, but to Hillary Anger Elfenbein they play a critical role in how individuals get their work done and how well they succeed in a team environment.

The newly minted assistant professor in the Organizational Behavior and Industrial Relations Group came to this conclusion in the course of her own work experiences.

"When I worked in consulting, my office was right next to the mailroom," remembers Elfenbein, "and all day people getting their mail stopped by to talk about their interpersonal issues and conflicts." She realized that the personal interactions among consultants and between clients and consultants were much bigger drivers of success than the technical quality of the financial and management analysis.

"Emotional expressions are evolutionary processes to help us get along in a social environment such as the workplace," Elfenbein explains. "People are constantly scanning the emotional states of those around them, not for social reasons but to get their jobs done."

To test the differences in people’s ability to interpret emotional cues accurately, she conducted experiments with randomly assigned teams at the outset of their one-year work program with Americorps. Some groups outperformed what she would have expected them to accomplish based on their individual test scores, and some groups underperformed.

"Even after being together for only one week, some teams had already jelled in the way that they interpreted each others’ emotions and other teams were at a loss with each other," she found.

People interpret emotional signals without being aware of it, and that plays a huge role in hiring, promoting, and teamwork decisions, concludes Elfenbein. "In the modern corporation, we are looking for a good fit, but what it means to be a good fit is very ambiguous. We often don’t realize the type of information that is giving us the gut decision why this person will fit in here and this person will not. Whether a person’s style feels comfortable is largely driven by their match with our own interpersonal style."

The challenge of reading emotional cues is amplified when communicating with someone from a different culture. Elfenbein discovered this first-hand while working in India. "What I thought were expressions of anger was just a more emphatic way of speaking," she remembers. "At the same time, at first my own statements often were not taken seriously enough because I did not express them very emphatically."

"There is this myth that emotion is universal, but that’s only partially true," she says. Although researchers have shown that people around the world could understand each others’ emotional expressions better than chance would predict, Elfenbein found that something still gets lost along the way. In analyzing the results of 87 prior studies she proved that people systematically understand the emotions of individuals from their own cultural group better than those from another.

This has big implications for multinational workplaces. Elfenbein is planning to research how expatriate executives adjust to their positions abroad. "A lot of these international transfers underperform against what they were expected to accomplish," says Elfenbein, who hopes to shed light on how cultural differences in emotional styles can add to the challenge of working abroad and how to improve quality of cross-cultural assignments.

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Hai Che, Ernesto Dal Bó, and Hillary Anger Elfenbein
Assistant Professors Ernesto Dal Bó, Business and Public Policy; Hillary Anger Elfenbein, Organizational Behavior and Industrial Relations; and Hai Che, Marketing, were among seven ladder-track faculty who joined the Haas School faculty in 2003-2004.

Ernesto Dal Bó

Hillary Anger Elfenbein

Hai Che
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