Podcast Interview on Behavioral Investing: Managing the Emotions Behind Our Decisions

Last month I chatted with Tony Roth, Chief Investment Officer at Wilmington Trust, N.A., a subsidiary of M&T Bank (NYSE: MTB) as part of his podcast series, Capital Conversations. For me, it was an interesting conversation to have had for a number of reasons, and three perspectives really captured the direction of my thinking. 

The first perspective was that as a society we have really been under a lot of stress for the past two years, a type of stress that I have not seen in my lifetime. So while investment markets are not currently very volatile, it is a good time for many people to get a fresh start and re-assess their situations.

The third perspective is that people are really different, and sometimes it can matter a lot. We understand some of these differences better than others (such as innumeracy and its impacts). There are other differences (like capability and confidence mismatches relative to new technologies, like cryptocurrency) that are less understood. As another example, the younger generation thinks about finance and life very differently than older generations. How to better address individual behavioral differences and situations will be an ongoing opportunity where people will need help.

The second perspective was that there are so many different behavioral elements at play when we think about different people, the interplay of fast, automatic thinking versus slow, reflective thinking; the digital world, and the numerous challenges of finance. It is unlikely that we can find one silver bullet, behavioral solution to fully address all problems. That said, we can put in place processes to help ensure that we make the best decisions we can for the things that really matter, while also avoiding some of the major obstacles that happen on a regular basis, such as overconfidence,  natural biases in forecasting the future, thinking in narrow frames, and others.

Thanks to Tony Roth and the Wilmington Trust team for hosting me for the podcast.

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Giving Students an Opportunity to Customize Their Classes

This past week I tried an experiment of allowing students to customize a portion of a 2.5 hour class. Students were given an option to “open” one of four doors, and then I would lead the class discussion in a direction based on what door they voted to open:

  • Door 1: Experiential activity (P2P-related)
  • Door 2: Agile/Scrum crash course (team-related, something you will likely encounter in business)
  • Door 3: Chapter 1 & 2 quiz “show”
  • Door 4: Idea on prospecting for research host

As an example, for Door 3 students could put me in the hotspot by having me present a short piece of research and then quiz me based on concepts in Chapters 1 and 2 of the course book.

The voting didn’t quite go as I expected it would. Students chose Door 1 over Door 3. Perhaps list item primacy effects? Perhaps they were caught off guard by being given this choice in the first place?

You might be thinking, “what was behind Door 1?” Well students got to role play that they were fishing together. They got to try different communication modes based on concepts from improv (e.g., “Yes, and”). The goal of the exercise was to help people develop better team communication styles as an early part of the process of forming project teams.

Regardless, in the end I think students had a good experience. Only time will tell I suppose.

Should Consultants Charge an Upfront Fee or Charge at the End of a Project?

This is an answer to a question I was posed on Quora.

I’d avoid collecting money entirely (i.e., 100%) on the backend except for the shortest and smallest engagements.

Here’s one anecdotal story: I once managed a business advisory practice as part of a large, international and diversified products and services firm. To get this practice off the ground we subcontracted to a number of consulting firms to fill in for delivery gaps we had. And some of these firms didn’t collect their fees that regularly since we were a massive firm with worldwide recognition and history. We always paid our bills, no problem. However as additional context below the surface, the company I worked for apparently had a variety of issues, in particular high levels of debt caused by years of merger and acquisition activity. The CEO had hired one of the big MBB firms are part of efforts to turn our company around.

One day the CEO announces that the company would proactively declare Chapter 11 bankruptcy even though we had cash and lots of assets. What did that mean? The consulting companies that I used as subcontractors could not be paid. The telephone calls I had to make hurt to make. At the time that damaged my reputation even though the whole situation was something that occurred at a much higher level. I do wonder what happened to the fees that were owed to the MBB firm that was helping at the strategic level. Were these paid off before the bankruptcy? Or did they get in line like I had to waiting for my severance pay to make it through the the courts? I have a bad taste in my mouth after that whole experience, especially since the CEO got a parachute whereas suppliers and trench workers comparatively did not.

There are many other examples that I could come up with. However, consulting firms have cash flow considerations to make. And they take some risks, so it is quite fair to pay consultants up-front or along the way in a timely manner. Things can happen that slow things up. For example, if you are doing business internationally, the client may need to do tedious checks on corruption and money laundering that can take time for larger deals but they may be able to release some money up-front to cover the consulting firm services being floated. Or other (probably rare) things can cause complete train wrecks such as working with a distressed firm that might declare bankruptcy out of the blue.

So as a consultant perhaps I have some baggage, but I’d avoid opting for the “complete payment after you’re done” option unless you acknowledge, however remote, the risks, uncertainty, and potential unknown unknowns that there are.

Reflections on My Roles and Purposes as a Teacher (A Personal Manifesto)

As we prepare to head into the 2022 fall semester at Cornell, I wanted to jot down some key thoughts on my roles and purposes as a teacher.

  • I care about my students and want to help them to learn something, go as far as they they are willing and able to go my classes, and be better prepared to achieve their goals in life.
  • While I have training as an academic and respect and nurture those skills, given that most of my students will be on professionally-destined tracks post-Cornell, I hope to bring to bear my experiences and insights from working for many years in the commercial world. In my past classes, students have told me that this is one of my big differentiators as a professor.
  • Being part of a university requires me to grade students. Admittedly, this process makes me uncomfortable. Comfort and grades aside, I will try to provide students with as much feedback, support, and encouragement as my role will allow me to do.
  • While I know a good deal about some things, I don’t know everything. In fact, I know close to nothing about many things. I have limits, and when I run into them, I will try to leverage my resourcefulness to try to point you in the right direction.
  • We will learn things together. I will learn from you, and I hope you will learn some from me, the other instructors, teaching assistants, and your classmates. We have a connection as aspiring people and through Cornell. Let’s make the most of our limited time together, through the good and the bad.
  • The fall is upon us, and I am ready to be on “team you”.

Case Examples of Empirical Research Methods As Related to Consulting Firms

Since many of my students aspire to work in consulting after they graduate, the purpose of this post is to round up some examples in the consulting space as related to research methods. This post will be updated from time to time.

Great Resource for Research Seminar Students on Statistical Power Simulations Using R

In the past, I have used power calculators like GPower for straightforward research designs, but I have never really found a good, practical resource on executing the mechanics of power simulations, especially when research designs and analytical frameworks are more complex. This great article provides a framework (with R code) to execute power simulations and may be useful to students in Research Seminar (AEM 6991). https://cameronraymond.me/blog/power-simulations-in-r/ . There is also a GitHub posting at https://github.com/cameron-raymond/power-simulation-tutorial.

Potential Student Resources for Data Scraping

Here are a few resources that students may find useful for research seminar projects that involve data scraping. This list of resources may be updated from time to time:

Good Papers on Machine Learning and Economics

Here are some overview papers that may be of interest to people that are learning about ties between machine learning and economics. Admittedly, it helps to have some formal background on causal inference to read these papers.

For more background on causal inference, I highly recommend the book by Scott Cunningham, Causal Inference.