Analyzing Credit, Bargain Hunting and Harvard, and More – Boston News
Let’s explore some of the most interesting stories that have emerged from Boston business schools this week.
What an MIT Professor Learned Analyzing 1 Million Credit Card Offers – MIT Sloan Newsroom
MIT Sloan Professor of Finance Antoinette Schoar used her appearance on Sloan’s “Data Made to Matter” podcast to discuss what analyzing one million credit card offers revealed.
“What we seemed to find in our study is that the [credit card] offers that are offered to less educated people rely in their pricing much more on these additional fees. Late fees, over limit fees, maybe default APRs that switch on once you’ve had a default,” she says on the podcast.
Schoar adds, “While people that are more educated, their cards seem to rely much more on the quite straightforward features, like they are paying an annual fee, and they’re paying an interest rate, but they are relying much less on these late fees and over limit fees.”
She also offers this takeaway for consumers:
“The more companies can model our behavioral biases, the more they can use them in extracting rents from us or catching us in moments when we’re inattentive or when we are not necessarily focused enough on choosing the right credit card, the right mortgage, or any of these products.”
You can read the full article here.
Bargain Hunters Beware: A Store’s ‘Original Price’ Might Not Be After All – Harvard Business Week
In a new working paper, Donald Ngwe, a Harvard Business School Assistant Professor, found that the “original price” many retail stores advertise in relation to an item’s hot bargain rate is often completely made up. In fact, the practice is much “more common than shoppers might realize.”
Ngwe says, “They never even tried to sell the product at that price. Consumers could never have bought that product at that price even if they tried.”
On Amazon, for instance, he notes that almost every item has a “struck-out price, but if you look at the policy behind that price, it’s incredibly vague. This makes me think that the fake prices are working to mislead the customers who know the brand the least, and who have the least information about the brand, into making a decision they would not have made otherwise.”
Ngwe’s research found that if customers “were given verifiably fake prices,” it actually does not change people’s “evaluation of quality” since we have gotten so used to the practice.
He concludes, “My results show that customers don’t see through the ruse. Even in outlet stores where they might expect some level of false discounting, they are still very influenced by these signals.”
You can read Ngwe’s paper Fake Discounts Drive Real Revenues in Retail here or the original HBW article here.
From Sheet Music to Spreadsheets – Sawyer Business School Blog
Sawyer Business School recently profiled Craig Pellet, MST ’18, a classically trained composer who ended up with a career at Boston firm Back Bay, from a Craigslist ad he answered on a whim.
Ten years after joining the firm, Pellett feels he had a number of major gaps that made it difficult to “solve client issues” so he decided to pursue Sawyer’s Master of Science in Taxation degree to “give [him] better tools to approach every problem.”
Craig Pellet, Sawyer Business School, MST ’18 / Photo via suffolk.edu
“Music teaches you how to practice, be committed, and be focused. It puts you in the mind-set: I want to get good at this, but it’s going to take me 10 years. So it’s time to start chipping away at it,” Pellett tells the Sawyer blog.
Pellett ended up working with his tax policy instructor Professor Michaele Morrow on a research paper that explored the notion of eliminating S-corporations to make taxation more fair. Morrow described Pellett’s notion as “pretty radical.”
“I somewhat believed him but wanted to really see. So I asked him to run the numbers. Turns out, he was right.”
Their paper was recently published in trade publication Tax Notes.
You can read the full interview with Pellett here.
BC Talks About the Wealth Divide, and More – Boston News
Let’s explore some of the most interesting stories that have emerged from Boston business schools this week.
The Wealth Divide – Boston College Magazine
With the wealth gap in the United States wider than at any point since the Great Depression, the discussion about income inequality has been hitting closer and closer to home for many. The ever-reaching effects of inequality can start right at the beginning of someone’s life, according to research from Boston College Carroll School of Management assistant professor Sean Martin.
Martin’s 2016 research in The Academy of Management Journal explores the link between social class and leadership. Entitled “Echoes of Our Upbringing,” Martin and his coauthors, University of Toronto’s Stéphane Côté and West Point’s Todd Woodruff, uncovered “connections between how much money leaders grew up with, their narcissism, and negative reviews from their subordinates” among 299 recent West Point graduates,” according to Boston College Magazine.
“To the extent that people grow up wealthy, they’re more likely to exhibit narcissistic tendencies, and narcissistic tendencies lead people to engage in fewer leadership behaviors that we would consider prototypical and more effective. And as a result, their performance suffers.”
“My own understanding is that we’re kind of in some real trouble here.” – Carroll Assistant Professor Sean Martin on the current state of income inequality.
You can read more about the study and Martin’s experience from living in his car, to earning his Ph.D. at Cornell here.
What Opening a Nonprofit Grocery Taught the Former President of Trader Joe’s – MIT Sloan Newsroom
As part of MIT’s recent Sustainability Summit, Trader Joe’s president Doug Rauch discussed how his new venture, Daily Table, attempts to tackle “food insecurity” and still keep prices low by sourcing “its food from farmers, factories, and supermarkets, through donations of excess food, ‘imperfect’ food, and reduced purchase prices.” Rauch shared some of the lessons he gleaned after receiving community feedback on his new enterprise:
“I’m told over and over again, how good they feel: I’m providing this for my family. I can now finally come in, buy the foods I’m supposed to be eating, I feel good about what we’re feeding our families. It is so fundamental to the human need we all have, which is for respect for dignity.”
Learn more about Rauch’s plans for Daily Table here.
Those Taxing New Tax Laws – Sawyer Business School Blog
The Suffolk University Sawyer Business School recently published an interview with professor of taxation Michaele Morrow, Ph.D., CPA, who offered a nuanced analysis of the changes people can expect as a result of the recent tax reforms. She writes:
“Congress is only focused on short-term effects. In fact, the tax cuts for individuals are scheduled to expire in seven years, so this isn’t true reform. First, Congress limited the dollar amount of state and local taxes that can be deducted to $10,000. At the same time, Congress increased the standard deduction to $12,000 for a single person and $24,000 for a married couple. Essentially, this means that fewer people will have expenses that exceed those standard deduction amounts, so many more will itemize.”
You can read more about Morrow’s take on the new U.S. tax reforms here.
