Intellectual Capital

What impact does pricing have on food decisions? What spillover effects do mutual funds and other investment vehicles have on each other? Two professors share about their research interests.

From the Winter 2013 edition of Vanderbilt Business

As members of one of the nation’s top research universities, Owen faculty always have something interesting on their minds. Here’s a portion of what two faculty members are currently pondering.

Kelly Haws

Kelly HawsWho:
Kelly Haws, associate professor of marketing. Haws is one of five new faculty members who joined Owen in 2013. Previously, she served as assistant professor of marketing and Mays Research Fellow at Texas A&M University’s Mays Business School, where she was a three-time winner of the student-selected SLATE Teaching Excellence Award. The Association of Consumer Research presented her with this year’s Early Career Award for recognized contributions to consumer research.

What she’s researching:
Food. More precisely, Haws looks at the consumer psychology surrounding how we decide to purchase and consume food. One of her latest studies examines the trade-off effects of supersize pricing. She says consumers typically go into a restaurant with a mindset balanced between financial and health concerns—they don’t want to spend too much money and they want to make good food choices. But when faced with the skewed prospect of paying just 50 cents more for an item that’s 50 percent larger, the thrill of getting a good deal tends to completely overwhelm any previously held notions of eating well. “The good news is that we can use this effect for good as well as evil,” she says, pointing out that offering supersize pricing on carrots works like it does with more hedonistic items such as French fries.

Although the influence of supersized pricing seems to be quite powerful, a study Haws conducted with a research colleague found that simple reminders about healthy eating can help reduce the appeal of the cheaper-per-unit larger sizes and curb overconsumption. Haws and her co-author hung or removed a poster at a sporting event concession stand reminding customers that “Calories In = Calories Out.” Snack purchasers who saw the poster were more likely to forgo the deal associated with supersized pricing than were those who didn’t see the health message. When it comes to posting nutritional information like calorie counts in restaurants, however, the jury is still out. “Even though it seems like there is clarity on that issue, in that providing information is better than not doing so, the findings are still pretty mixed in terms of actual impact on consumer decision making,” she says.

Why it’s important: Haws boils her two main research interests down to these: decisions about our finances and decisions about our health, particularly when it comes to food. Asked how she became interested in these two topics, Haws says she first started thinking about issues of bad decision making when she worked in the subprime mortgage industry after receiving her MBA. “I still remember working with a woman who was paying for a crib she’d purchased on a credit card for her son—who was in college at the time,” Haws says. As for her focus on food, Haws says research from a variety of disciplines—including marketing, nutrition and medicine—has exploded in the last decade. It’s a booming business, plus as a researcher, Haws finds there are plenty of rich data sets.

One of the major questions underpinning all the work in understanding how consumers make food decisions is whether it’s best to follow a path of moderation or abstention. Haws says she approaches that idea in an agnostic way, instead looking at what effect either route has on larger patterns of behavior. “If I were to get on my soapbox, I’d say it doesn’t really matter what choices you make on any particular day,” she says. “What I want to know is how those choices affect the overall pattern of decision making.”

Jesse Blocher

Jesse BlocherWho:
Jesse Blocher, assistant professor of finance. Blocher joined Owen in 2012 after completing his Ph.D. at the University of North Carolina’s Kenan-Flagler Business School. Prior to working on his doctorate, Blocher worked at TIAA-CREF and Accenture.

What he’s researching: Interconnectedness in financial markets, a topic that was thrust into the spotlight following the 2008-2009 financial crisis. In particular, Blocher examines the spillover effects that mutual funds and other investment vehicles have on each other. “To use an analogy from real estate, if you buy a house and someone buys the house across the street from you and improves it, your home value goes up,” he says. “What I do with mutual funds is show that if I’m a mutual fund manager and someone else buys the securities of another fund that’s similar to mine, the fact that they’re buying those makes their value go up, which also helps me.”

Why it’s important: It’s tempting to associate Blocher’s work with a kind of herd mentality among investors. But actually, Blocher says he looks at what are called crowded trades. In other words, once the investment herd has adopted a popular position—something like Apple, or more recently, Tesla—what are the impacts of that? Perhaps not surprisingly, Blocher has already come up with some findings showing that these crowded trades cause both positive and negative market swings that aren’t necessarily tied to fundamentals. What is less understood is exactly how this phenomenon plays out across the market, not just at individual institutions or funds. For example, where is the point at which panicked selling begins to spill over to other funds? “In many ways mutual funds can behave almost like banks, where you can get a kind of bank run on funds, whether those are mutual funds, hedge funds or whatever,” Blocher says.

Since coming to Vanderbilt, Blocher has started working with Robert Whaley, the Valere Blair Potter Professor of Management, on securities lending—that is, when something like an exchange-traded fund or mutual fund will loan out stocks or bonds and collect rental income on those assets. “Not much is known about this practice, but how much of this income is retained by financial services companies and how much is passed on to investors is still somewhat controversial,” Blocher says. In addition, Blocher and Whaley are investigating the potential risks to investors when their portfolios are lent out, which include poor returns on collateral invested or even an inability to recall the lent shares when needed. Who would bear these losses is not always clear—if investors bear the risk, it doesn’t seem that they are compensated for it.

The common theme for Blocher in both of these areas of research is the new linkages that are being created among banks. “We can understand ‘too big to fail,’ ” he says. “But to the extent that the big banks get smaller—which I think would be a good idea—and get more interconnected with each other, it may be that we’ve taken a problem concentrated in a few large entities and instead distributed it to a lot of smaller entities that then start to behave like one large entity. I think that would be a problem.”

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