Emerging technologies like AI are profoundly transforming the economic system and social structure, posing unprecedented challenges. A CUHK expert offers insights on navigating these complexities

Following the launch of ChatGPT in late 2022, artificial intelligence (AI) has supercharged the possibility to revolutionise the modern industry, rushing Microsoft to invest US$10 billion in OpenAI. This step signalled a race among big tech to incorporate AI into their products. A few months later, Meta introduced its own AI called LLaMa, while Apple recently announced its “Apple Intelligence” system by integrating AI into its gadgets.

The US is not the only one that is trying to get its hands on AI. When OpenAI launched its video-generation model Sora in February this year, many were amazed by its ability to create videos just by typing a cue on a keyboard. Fast forward in June, China’s short-video platform Kuaishou unveiled a text-to-video model named Kling, making it a worthy opponent for Sora. The UK, France, Germany, Israel, India, Japan, and Singapore have also entered the ring in the AI competition.

AI will not replace humans, but those who don’t make good use of AI [will be replaced].

Professor Dominic Chan

According to a 2024 AI index report by Stanford University, generative AI funding surged to US$25.2 billion in 2023, nearly nine times higher than the previous year and 30 times the amount recorded in 2019, with generative AI made up more than a quarter of all AI-related private investment. The report also indicates that AI outperforms humans in certain benchmarks like image classification and English understanding, but it still falls short in complex cognitive tasks.

But not everyone is amused. A Global views on AI 2023 survey by market research firm Ipsos found widespread concern about the negative impacts of this advanced technology on employment. Approximately, 57 per cent of 14,782 working adults across 31 countries anticipated that AI would change the way they do their current jobs, while 36 per cent were worried about AI taking their jobs.

AI-productivity
AI can make a big difference in productivity and quality of the work.

How is AI going to impact our society and transform industries? What can people do to get themselves ready for this new era? Dominic Chan, Associate Professor of Practice in Entrepreneurship of the Department of Decisions, Operations and Technology at the Chinese University of Hong Kong (CUHK) Business School, shared his thoughts on these questions in a masterclass for the school’s EMBA programme titled Embracing technological disruption: Thriving as leaders in the age of AI in April.

Assisted intelligence

In a nutshell, AI refers to the technology that enables computers and machines to emulate human intelligence and tackle problem-solving tasks. The words people hear a lot such as machine learning, deep learning, natural language processing and generative AI, are all interconnected fields within the broader domain of AI. These advanced technologies have been applied to various sectors and industries to streamline processes and improve efficiency. In the realm of business, AI encompasses a wide range of applications, including chatbot assistants, fraud detection, and task automation, among others.

“AI can help you to organise your information or help you automate the process, which makes a big difference in productivity and quality of the work,” Professor Chan says, adding that AI can amplify human abilities.

Professor Chan also highlights that people should view AI as “assisted intelligence”. This perspective underscores the notion that AI serves as a tool to assist people rather than replace them. He notes that AI lacks the ability to think independently and operates based on the training it receives from human input. “AI makes decisions based on mathematics not ethics,” he adds.

Will I lose my job to AI?

Along with the emergence of new technologies throughout history, the topic of job security has once again become a prominent concern, with people expressing apprehensions about being replaced by AI.

To illustrate which types of jobs are most threatened by AI and which types of jobs are likely to be safer, Professor Chan refers to a model proposed by a renowned businessman and computer scientist, Lee Kai-Fu, in his book titled AI superpowers: China, Silicon Valley, and the New World Order. According to this model, jobs that primarily require optimisation rather than compassion to be most likely to be replaced, such as truck drivers. Conversely, jobs involving compassion, creativity, or strategic thinking, such as social workers, are less likely to be replaced.

AI-technology

Furthermore, from the analysis of Age Earning Profile, Professor Chan observed very clear shifts in income trends across generations as people age, indicating that the income curve peaks at an earlier age with each subsequent generation. Separately, Professor Chan observed those born between 1986 and 1995 earning less than the previous generations. This phenomenon is partly attributed to the rapid development of technology. Knowledge and skills accumulation held significant value before the 1990s because computers, the internet and AI had not yet become widely available. Now, with the advancement of technology, human knowledge and skills depreciate rapidly.

“The way for most people to create value today is the ability to use technology,” says Professor Chan.

AI poses challenges not only for rank-and-file employees but also for the management. A 2023 report titled Leadership in the age of AI by IBM indicates that 82 per cent of more than 1,600 senior leaders surveyed have deployed or planned to implement generative AI in 2024. Alongside opportunities, the report highlights that business leaders across all sectors grapple with challenges related to skills, ethics, privacy and data security.

“In the past, managers primarily managed people, but today they have to manage the machines as well,” says Professor Chan. “Managers also need to oversee and facilitate the technological interactions between their own organisations and other firms.”

Make good use of technology

While AI has undoubtedly reduced tedious work and enhanced productivity, it is not without flaws. For instance, if you ask AI to generate a picture on the subject of a secluded temple on a mountain, it can present you with glorious images of temples and mountains. However, a human tasked with the same assignment may have different outcomes, which would feature symbols or metaphors that go beyond the literal interpretation of the request. Professor Chan notes that AI doesn’t think by itself but relies on what humans have already done.

RELATED ARTICLE

AI vs. humans: Who wins in handling service rejections?

Whether their current job falls into a safe or dangerous zone, everyone needs to be well-prepared for the future coexisting with AI. Professor Chan suggests that individuals who possess complex problem-solving skills, critical thinking, creativity, communication, and compassion (or he calls them 5C abilities) will be better equipped to deal with the challenges ahead.

Finally, Professor Chan encourages people to embrace AI technology and enjoy the ride, as it will make individuals more productive. “AI will not replace humans, but those who don’t make good use of AI [will be replaced].”

Free courses seem appealing, but they often suffer from a lack of motivation and commitment. Without a stake, learners may struggle to stay engaged

In our pursuit of knowledge, abundant resources exist nowadays to learn new skills, many of which come at no cost. Companies, non-profits, and governments are eager to provide free classes for human capital development initiatives. Meanwhile, online course providers like Coursera, Udacity and edX offer a wide range of subjects just a few clicks away without charge.

Regardless of the goals to be achieved, these free training and courses have the potential to deliver major benefits. However, low completion rates and a general lack of commitment loom as challenges that need to be addressed. There is little to know about whether these free offers can engage learners effectively and promote lasting commitment.

Free products normally attract customers, yet our modern lifestyle tends to undervalue what comes without a price tag. Many studies have shown that free offers reduce repurchase intention as the product’s inherent value would be obscured. With that being said, free courses may fall victim to a lack of appreciation. So, how can we design a free course that sustains long-term learning motivation?

learning incentive
Free courses may fall victim to a lack of appreciation as their value and benefits may be underestimated.

This is the puzzle that Catherine Yeung, Associate Professor of Marketing at the Chinese University of Hong Kong (CUHK) Business School, and Dr Lee Yih Hwai of NUS Business School, try to solve. In recent research titled Incentives for learning: How free offers help or hinder motivation, they investigated the impact of different types of incentives on learning motivation when it comes to free courses.

It turns out that shifting attention from zero-price to a value proposition can encourage a longer-term commitment. “One way for marketers to redirect consumers from focusing on the zero price to elaborating on learning benefits can be found in how the offers are implemented,” says Professor Yeung.

The key point is the monetary cost incurred in the early stages. Compared to granting a waiver upfront, the study found that offering a refund would lead to greater motivation. Refunds also increase engagement and the likelihood of revisiting the learning materials for a longer term. This effect can be attributed to a set of cognitive operations called mental accounting, which keeps track of expenses and monitors consumption.

“People account for time and thinking costs through mental accounting procedures, just as they do for money,” she adds. “People create mental accounts for time spent on a specific activity and track the accrual of benefits associated with the time spent.”

How mental accounting calculates

In daily life, people open a transaction-specific mental account when they incur a cost and the account remains at a negative balance until they receive compensation. Driven by the need to account for upfront spending, people will reflect more on the benefits compared to when no penny was spent. Following payment, mental accounting draws more attention to the inherent value of the learning activity, laying a foundation for greater persistence.

“The cognitive procedure associated with making a payment, in general, may be activated and therefore induce a tendency to think through how one can benefit from the incentivised activity and whether these benefits justify the cost,” says Professor Yeung.

One way for marketers to redirect consumers from focusing on the zero price to elaborating on learning benefits can be found in how the offers are implemented.

Professor Catherine Yeung

Taking mental accounting into account, she contrasted two arrangements commonly used when offering free courses: tuition waiver and tuition refund. Although both arrangements essentially mean free of charge, one key difference is the need to make an upfront payment.

“Tuition waivers provide no cost that needs to be mentally accounted for, making learners less likely to contemplate the learning benefits,” she adds. “While waivers may attract more initial sign-ups, refunds tend to drive stronger engagement over time by putting the learning benefits front of mind.”

Weighing between waiver and refund

To get to know more about the differences between waivers and refunds in affecting learning motivation, Professor Yeung and Dr Lee ran multiple experiments involving hundreds of undergraduate students in Hong Kong and Singapore.

In one of the experiments, students were informed about a scenario where the publisher of an award-winning book, The Element of Style, was selling content in small portions based on individual needs. The students in the waiver condition were told that the university would cover the fee, while those in the refund condition had to pay a fee at the beginning and get a refund later.

The results of all experiments showed that the students who received a refund deliberated more on the benefits of learning, expressed greater determination, and were more likely to return to the learning task in the future.

In another trial with adult UK residents, Professor Yeung assessed the moderating role of non-monetary cost in shaping attention. Specifically, she modified the amount of effort required to sign up for the free course, with some participants facing no effort and others facing elevated effort. The finding also supports the advantage of a fee refund in focusing learners’ attention.

learning incentive
Companies can leverage mental accounting to boost employee motivation and commitment towards professional development activities.

“Even though the payment is eventually refunded, the act of paying directs the learner’s attention to the benefits they expect to receive from the learning activities,” she explains. “This stimulates more conscious consideration of how the learning activities will help them develop valuable knowledge and skills. It is often this type of thoughts that keep people engaged.”

Designing programmes for learning and development

As one of many psychological principles influencing motivation, companies can utilise mental accounting to enhance employee motivation and commitment to professional development activities. In this case, the training content and perceived long-term career benefits tend to be the biggest drivers.

“When learning activities require some upfront investment of time or effort, it gives people more skin in the game. However, mental accounting alone is unlikely to sustain motivation in the long run if employees cannot figure out the actual benefits from the learning activities,” says Professor Yeung.

Therefore, she highlights that the choice between refunds and waivers should depend on the organisation’s learning engagement goals. For training focused on short-term knowledge transfer or one-time participation, upfront waivers are often the better choice. With no initial cost barrier, waivers maximise the number of learners who will sign up and attend.

However, if the objective is to foster long-term skills development through ongoing learning, refunds are more effective. The upfront payment makes learners more aware of the personal and professional benefits they expect to gain. This benefit-focused mindset motivates them to stay engaged.

RELATED ARTICLE

Do equity analysts learn from past mistakes?

The mental accounting model can also be applied to encourage continued participation or purchase behaviour. If a business wants to encourage continued participation or purchase behaviour, Professor Yeung suggests the long-term rewards must be clear and enticing. Under this premise, businesses can design incentive programmes that require a small initial investment of effort, time or money to participate.

“According to mental accounting principles, this upfront payment is mentally coded as a loss that motivates the customer to seek gains from the programme to balance their mental account,” she explains. “It’s about striking a balance. The initial cost activates mental accounting, but it shouldn’t be so large that it deters people from getting started. The key is framing the programme as an investment that will pay off.”

New study sheds light on the involvement of real estate agents in tax evasion practices in China’s housing market, calling for regulatory measures and increased transparency

In a highly anticipated move, China’s top judicial authorities have recently declared that twin contracts or “yin-yang contracts”, which refer to two documents being produced for the same agreement, as a form of tax evasion. While the country steps up its efforts to combat fraud, the new decision will help prosecutors and judges solve tax-related cases more effectively.

Yin-yang contracts are fairly common in real estate transactions in mainland China. The yin contract contains the actual price of a property that is kept secret from authorities, while the yang contract with a significantly lower price is submitted to local authorities. This practice has faced criticism for distorting property prices and causing conflicts between sellers and buyers, as the official record no longer offers a dependable and precise measure of a property’s value.

Yin-yang contracts often facilitate tax evasion by allowing for a lower recorded transaction price, which benefits both buyers and sellers financially in the short term.

Professor Yang Yang

“Yin-yang contracts often facilitate tax evasion by allowing for a lower recorded transaction price, which benefits both buyers and sellers financially in the short term,” says Yang Yang, Assistant Professor at the School of Hotel and Tourism Management at The Chinese University of Hong Kong (CUHK) Business School. “Sellers can avoid higher taxes on capital gains, while buyers can reduce their property taxes and registration fees.”

It is worth noting that yin-yang contracts mostly occur in the resale housing market. Professor Yang observes that such practice is not applicable in new home transactions that involve direct dealings between buyers and developers with no involvement of real estate agencies. “The sales prices of new homes are required to be officially recorded or registered, leaving no room for the existence of dual contracts with discrepant prices, as characteristic of yin-yang contracts,” she says.

Looking through yin and yang

Given the significance of real estate agents in determining the reported price to local registration offices, examining their role in yin-yang contracts and tax evasion is crucial. To address this issue, Professor Yang conducted a study titled The role of agents in fraudulent activities: Evidence from the housing market in Beijing, in collaboration with Professor Sumit Agarwal of the National University of Singapore, Professor Kuang Weida of the Renmin University of China and Professor Wang Long of Fudan University.

The team collected relevant data from the largest real estate brokerage firm in mainland China, including the sales records in the secondary housing market of Beijing from 1 January 2014 to 1 June 2017, along with information on the agents involved in each transaction. Although the primary analysis relies on data from the capital city, the researchers found it reasonable to assume similar prevalence in other major cities in China.

real-estate-agent-housing-contract
Closing deals and earning commissions are the main drivers for real estate agents.

The data confirms a widespread practice of yin-yang contracts. More specifically, around 97 per cent of transactions involve such contracts, with the registered price averaging 32 per cent below the actual price. Real estate agents are found to play a significant role in this practice.

So, what motivates agents to create such contracts? Closing deals and earning commissions are the main drivers for real estate agents, making dual contracts quick solutions that benefit buyers and sellers. “There may be a prevailing cultural or societal acceptance of such practices, leading individuals to prioritise immediate gains over potential long-term legal consequences,” says Professor Yang. “Also, the complexities of the real estate market and the limited enforcement of regulations may embolden individuals to take risks.”

The researchers further explored how real estate agents influence the creation of yin-yang contracts and the extent of tax evasion. They first studied whether an agent’s past experience made a difference. As expected, agents with more experience tend to facilitate contracts with a higher level of tax evasion than their inexperienced peers. “Experienced agents could learn from their experience to appraise each district’s guideline price and assist clients in registering relatively lower prices,” Professor Yang explains.

In China, local tax authorities have established minimum price guidelines for second-hand housing transactions in each neighbourhood. Reporting a price slightly higher than the internal guideline helps buyers minimise their tax payments.

The team also explored the role of “peer effects”, which refers to the influences from fellow agents’ behaviours and characteristics. The results confirmed that real estate agents learned from their peers in tax evasion practices.

Different responses to policy adjustments

The involvement of real estate agents in tax evasion then raises a question about its impact on the real estate market. To get an answer, the researchers examined how agents responded to two housing policies that affected the minimum down payment.

real-estate-housing-market
In China, local tax authorities have established minimum price guidelines for second-hand housing transactions in each neighbourhood.

The first policy, introduced by the People’s Bank of China and the Ministry of Finance in March 2015, combined a 30 per cent reduction in minimum down payment for mortgage buyers with a 5.5 per cent decrease in the tax rate for properties held for more than two years. Lower down-payment requirements would shift cash buyers to mortgage, increasing registered prices and reducing tax evasion. On the other hand, mortgage buyers could register their homes at a lower price with yin-yang contracts while still receiving the same loan amount as before, leading to increased tax evasion.

Professor Yang attributes this complex outcome to the dilemma of mortgage buyers. “Cash buyers usually aim to evade taxes by registering the property at a lower price,” she says. “However, mortgage buyers find themselves torn between registering higher prices to secure larger loans from banks and desiring to register lower prices to evade taxes.”

When the minimum down-payment requirement was increased from 30–40 per cent to 35–70 per cent through a policy issued in September 2016, some mortgage buyers could opt to purchase properties with cash instead, which would result in lower registered prices and increased tax evasion. However, among those who still chose to obtain a mortgage, the higher down-payment requirement would compel them to report higher prices for the same loan amount, acting as a deterrent to tax evasion.

The analyses found that experienced real estate agents exacerbated the magnitude of tax evasion during periods of the above policy adjustments. More specifically, agents’ expertise contributed to more tax evasion when minimum down payments were reduced, and the opposite occurred when minimum down payments were increased.

Imposing penalties can help

While the role of agents in fraudulent practices remains poorly understood in existing literature, this research addresses the gap and provides solid empirical evidence. Moreover, the findings can be generalised to other illegal activities involving intermediaries and offer insights into potential solutions.

RELATED ARTICLE

How Drop in Home Prices Benefits Renters

“By understanding how intermediaries manipulate transactions to evade regulations and taxes in the real estate market, other industries can learn to identify similar patterns and regulate the behaviour,” Professor Yang says. For instance, regulators in underground banking can search for discrepancies between recorded and actual transactions, similar to those observed in yin-yang contracts.

To effectively deter such illegal activities, Professor Yang suggests imposing penalties on intermediaries, which includes enforcing stricter licensing requirements, implementing financial penalties like fines, and establishing robust monitoring systems. Additionally, enhancing transparency and accountability through mandatory transaction and audits reporting can also contribute.

“Our research underscores the importance of vigilance and regulatory oversight in combating illegal activities facilitated by intermediaries across various industries,” Professor Yang concludes.

Either you have passion for your work or you don’t, researchers find this to be a myth and suggest passion can be cultivated and sustained over time

When hiring new staff, managers often look for candidates who show a great deal of passion for their work. But even if a new hire starts off with a bang, how long does that initial passion last? As literary giant Victor Hugo once lamented “passion does not endure” in a love letter, the same caveat can be applied in the context of work.

Much research has been conducted on the subject of passion at work, but it presented a static and one-directional view – one that assumes an employee either has the passion or doesn’t at all. Presumed to be simply a character trait, passion then leads to positive outcomes in the workplace and enhances employee satisfaction, job performance and career development.

A group of researchers believe that this view of work passion is too limited in scope and does not match the changing reality in the workplace. While previous research did find that even when an employee possesses passion, it fluctuates over time. The question remains: “How do you sustain it?”

career, work passion
Passion for work can be sustained over time through proactive “job crafting”.

Professor Li Wendong, Associate Professor in the Department of Management at The Chinese University of Hong Kong (CUHK) Business School, and his collaborators were one of the first to tackle this question in their study named Sustainability of passion for work? Change-related reciprocal relationships between passion and job crafting.

His team included a doctoral student at the same department, Yu Kaili, as well as Professor Zhang Xin of the Shanghai University of Finance and Economics, and Professor Hannes Zacher of Leipzig University.

New findings about passion and work behaviours

Professor Li and his team asked more than 3,500 participants at a German company over the course of 15 months to respond to questions about their work experiences and behaviours in the preceding three months.

The study demonstrates that passion for work not only can be developed on the job but also sustained over time despite its ebbs and flows. According to the study, an important factor that helps keep employees’ passion for the job alive is proactive “job crafting.”

“Job crafting is a type of goal-directed proactive behaviour that helps to align employees’ work more closely with their interests and values,” says Professor Li. “When we found out how influential job crafting is in fueling an employee’s passion for work, we realised how important personal agency is in keeping someone’s work passion alive.”

“An employee doesn’t necessarily start out with a ton of passion,” he adds. “By strategically directing and shaping the tasks, goals and connections at work, the employee can gradually grow their passion and sustain it in the long run.”

By strategically directing and shaping the tasks, goals and connections at work, the employee can gradually grow their passion and sustain it in the long run.

Professor Li Wendong

As a breakthrough from previous research, the study discovers a positive reinforcement loop between job crafting and sustained passion for work. This means one helps enhance the other and vice versa. So instead of a one-directional relationship, as previous research had shown, these two have a dynamic, reciprocal relationship.

Shaping the job to fuel passion

Based on existing research, there are two types of employees who exhibit passion for their work. One has “harmonious passion” while the other has “obsessive passion.”

“Those who have a high level of harmonious passion are driven by their intrinsic interests and values,” says Professor Li. “They are more likely to express their authentic selves at work and pursue goals that align with their genuine interests, talents and enduring values. They naturally devote more time and effort to job crafting. They would calibrate and recalibrate their work strategies over time to achieve their self-directed goals.”

While these employees incorporate work as part of their identity, work becomes well-integrated into their sense of self and does not take over their entire lives in an overpowering way. Their work is in harmony with other aspects of themselves, hence the term “harmonious passion.”

These employees would devote time and energy to tasks that are most meaningful to them. They also like to seek out new and stimulating tasks, and build connections with people at work who appreciate their values and support their efforts. In addition, they have a strong desire to grow their creative work capacities over time.

The close fit between their job and their internal values as a result of job crafting in turn gives these employees a greater sense of satisfaction, meaning, purpose, growth and enjoyment through their work. This further motivates them to put in even more effort to promote a higher level of alignment — thus positively reinforcing their passion for work.

career, work passion
Employees with “obsessive passion” feel intense pressure and an uncontrollable urge to work all the time.

The researchers conclude that a major key to sustaining passion at work is harmonious passion, and that engaging in job crafting itself can contribute to the development and enhancement of harmonious passion over time. These two forces positively reinforce each other.

When passion becomes an obsession

On the other hand, the researchers believe that this kind of positive reinforcement is less likely to occur among employees who exhibit “obsessive passion” in their work. These employees have mixed motivations in their passion for the job.

While they carry intrinsic motivations like those driven by harmonious passion, they also engage in work out of a sense of obligation, or with the goal of gaining social acceptance, meeting others’ expectations or achieving their own personal standards of excellence.

Although these employees love and value their work, they feel an intense pressure and an uncontrollable urge to work all the time. Their self-esteem may be dependent on other people’s recognition of their work contributions. They may feel compelled to work intensely to repeatedly experience the thrill of rewards from their job.

Because these employees hinge their sense of self-worth primarily on their achievements and recognitions, they are also more vulnerable to comments and events that threaten their ego. As a result, they tend to experience more negative feelings, such as anxiety and rumination.

Although less likely to engage in job crafting, when these employees do engage in it, their passion is still sustained, and the sustained obsessive passion in turn motivates them to engage in more job crafting. A caveat: the types of job crafting involved in this dynamic are more limited than the types that those with harmonious passion engage in.

Practical applications for managers and employees

The study findings shed light on how employees can cultivate and sustain their passion for work through their own efforts. So, instead of suggesting people to go find their passion and then get a job that matches it, the study demonstrates that a dynamic growth mindset can allow employees to grow their passion on the job over a period of time. This can be achieved through job crafting.

RELATED ARTICLE

Understanding fundamental recruitment error in talent acquisition

At the same time, managers can take active measures to cultivate harmonious passion in employees by providing some flexibility in their work environment.

“If managers allow some degree of customisation in their employees’ work based on their strengths and values, employees will be more likely to engage wholeheartedly with their job,” says Professor Li. “Autonomy and support go a long way in making them more passionate about their work and motivating them to further craft their job on their own initiative. This is how we can fuel the fire of their passion and keep it going.”

A new study explores the emerging trend of smart contract audits and shows that in the realm of assurance, decentralised finance is proving its worth

Decentralised finance, or DeFi, emerged more than a decade ago alongside the rapid growth of cryptocurrencies as alternative investments. With no central authority, DeFi disrupts traditional financial systems and is a conduit for innovation. At the core of its disruptive power lie smart contracts on self-executing blockchains.

Similar to other financial products, DeFi is not immune to theft, which is caused by programming errors and incomplete contracts. In April 2023, for example, blockchain-based lending protocol 0VIX lost approximately US$2 million after hackers exploited technical faults to manipulate its token prices. To mitigate this risk, smart contract audits became popular.

smart contract audit, blockchain, crypto
Smart contract audits focus on the integrity and completeness of a piece of computer code as opposed to financial statements.

Unlike standard financial audits for public firms, smart contract audits focus on the integrity and completeness of a piece of computer code as opposed to financial statements. A new study by Janja Brendel, Assistant Professor of the School of Accountancy at the Chinese University of Hong Kong (CUHK) Business School, found that the smart contract audit market is thriving.

The study titled Decentralised finance (DeFi) asssurance: Early evidence, which was conducted in collaboration with Professor Thomas Bourveau at Columbia University and Professor Jordan Schoenfeld at the University of Utah, provides valuable insights into the smart contract audit market and the role of auditors in ensuring the security and reliability of DeFi ecosystems.

“We provide some of the first evidence showing that these audits are pervasive, with the audit firm market composed of new technical audit firms. The scope of these audits can span a variety of contract features, and the audit inputs and outputs differ substantively from those of conventional financial audits,” says Professor Brendel. “The market reacts positively to the release of these audit reports, suggesting that these reports are value-relevant.”

DeFi making deft inroads

For this seminal study, Professor Brendel and the team gathered a comprehensive sample of smart contract reports from January 2017 to the end of June 2023 from a smart contract scanner, De.Fi. The data showed that new blockchain assurance services have become a force to reckon with in the market in the past few years, as can be seen in the table. The “full sample” consists of 8,531 unique audit reports that delve into specific details. The “market sample” comprises 303 audit-venture events focusing on each DeFi project.

smart contract audit, blockchain, crypto

The audit market for smart contracts is composed of many new entrants. TechRate, the largest audit firm established in 2017, accounts for around 20 percent of the market share, followed by InterFi, founded in 2021, with more than 11 per cent and Certik, which was set up in 2018, with six per cent.

In terms of cost, the audit fee mostly depends on the length and complexity of the code. Audit firms with more expertise and experience can also charge more. TechRate and InterFi are widely considered to be low-cost, charging from US$250 and US$300 respectively, for a standard audit. As a comparison, Quantstamp, OpenZeppelin, and Trail of Bits label their services from US$5,000, and Hacken starts its fee at US$9,000.

These prices are justified for various reasons. The largest audit firms have conducted audits for more than thousands of projects with household names in the crypto world. Top-quality audit firms are found to provide more detailed reports, comprising team size, methods used, and days spent on the audit. These firms are also more likely to deploy audit teams of five or fewer, use a combination of manual and automatic processes about 88 per cent of the time, and conduct longer audits, as measured in days.

While these audits can identify vulnerabilities, programming errors, and deviations, audit firms do not provide a guarantee against data breaches, thefts, and hacks. Many smart contract audit firms even put legal disclaimers in their reports and advise clients to obtain third-party opinions, leaving some space for insurance to grow. For instance, Certik introduced a plan in 2023 to compensate its clients for any hack-related losses incurred after one of its audits, up to US$2 million.

Smart contract audit reports are used by DeFi service providers primarily to build trust with existing and prospective users of and investors in their services.

Professor Brendel Janja

Users can look at several factors to assess how good an audit firm’s reputation is. This includes checking portfolios and tracking records. If they have worked on large and high-profile projects that have not been compromised, it is a sign of reliability. Those seeking a smart contract audit should look at the firm’s previous projects with specific blockchains, as they may be more relevant to the project they are currently pursuing. The smart contract audit firm’s previous reports can also be examined for their level of detail or comprehensiveness.

Keeping on the right track

“Smart contracts play an increasingly important role in structuring and executing common DeFi financial transactions, such as loans and venture capital funding, with more than US$200 billion now locked in such contracts,” Professor Brendel explains. “Smart contract audit reports are used by DeFi service providers primarily to build trust with existing and prospective users of and investors in their services.”

smart contract audit, blockchain, crypto
The release of a smart contract audit report is found to result in a positive and statistically significant market-adjusted return.

Such assurance is important, perhaps due to its decentralised nature, which means smart contract audits are not mandated by legislation. Besides, blockchain projects have a chequered history, so it is inevitable that investors need reassurance that the security protocols are up to scratch and that the underlying code works. This allows investors to assess the overall trustworthiness of blockchain projects while mitigating the risks that cause loss of income and irreversible damage.

Smart contracts that are audited are often audited again when there is a significant update to the contract, not periodically every fiscal year like financial audits. There is no formal education or certification required to be an auditor, and the audits also do not need to follow a universal standard or guideline, which means that the audit process and output can differ significantly based on the auditors’ approach and methodologies in ways that financial auditors typically cannot.

In general, smart contract auditors normally apply automated bug detection software to scan smart contracts for potential vulnerabilities, then augment the procedures with line-by-line manual code review to ensure a thorough assessment. Furthermore, stress testing is also conducted to emulate different attacks that could threaten the system.

RELATED ARTICLE

Can crypto spring reshape social lending?

Blockchain and crypto companies can decide whether to release the audit result after weighing the costs and benefits. However, the release of a smart contract audit report is found to result in a positive and statistically significant market-adjusted return of about a 10 per cent increase within the two days after the release. This is consistent with the longstanding proposition in accounting that audits serve as a mechanism to reduce information asymmetry and improve the functioning of capital markets.

With the proliferation of DeFi, assurance services within these new fields are becoming crucial to all fields of business for a number of reasons. Auditing is essential for adding credibility to information that is disclosed, which in turn helps increase trust with users and investors and ultimately helps to raise the number of transactions.

New research shows chatbots can help reduce negative reviews in certain cases, despite the general preference for human agents

There will come a time when personal interaction in handling customer services becomes obsolete. And that time might be sooner than we thought. Companies have increasingly adopted artificial intelligence (AI)-powered chatbots to handle customer requests, leading to improved service management, reduced labour costs, and the efficient delivery of standardised services. But, what is the catch?

According to the latest report by Spherical Insights, Global Chatbot Market, the market size of global chatbots reached US$5.39 billion in 2023, and it is projected to surge to US$42.83 billion by 2033. As chatbots continue to rise in prominence, it is crucial for companies to gain a better understanding of customer reactions to the services provided by this advancing technology.

travel-memory-creativity
The use of chatbots is continuing to rise in prominence.

Chatbots are designed to handle customer requests in a standardised manner, relying on preprogrammed procedures and algorithms. “Indeed, consumers often have an aversive attitude toward services provided by robots because they perceive that robots lack uniqueness and empathy,” says Shen Hao, Professor of the Department of Marketing at the Chinese University of Hong Kong (CUHK) Business School.

However, the service from chatbots does not always carry a negative connotation, especially when companies have to reject consumer requests, which is sometimes unavoidable. “Our research finds that when consumers receive a rejection of their service request, they evaluate the service less negatively if the service is handled by a chatbot agent versus a human agent,” Professor Shen says.

In a new study titled The rise of chatbots: The effect of using chatbot agents on consumers’ responses to request rejection, Professor Shen and Professor Xiong Ji of the Southwestern University of Finance and Economics, Professor Yu Shubin of BI Norwegian Business School, explored how and why consumers react differently when their requests are declined by a real person or a chatbot.

Low expectations from chatbots

Chatbots are anticipated to offer highly standardised services characterised by clearly defined steps and minimal outcome variability. “They are considered less able to cater to consumers’ personal preferences,” says Professor Shen, “As a result, consumers tend to have low expectations about the level of flexibility in service from chatbots.”

Drawing on their observations, the team proposed that a rejection of a service request is less likely to negatively impact consumers’ evaluation when handled by a chatbot. Furthermore, they also suggested that consumers may have less appreciation for chatbots as they perceive them as mere rule-followers when processing requests.

When consumers receive a rejection of their service request, they evaluate the service less negatively if the service is handled by a chatbot agent versus a human agent.

Professor Shen Hao

To test their hypotheses, the researchers conducted a series of experimental and field studies. In the first three studies, they found evidence that consumers’ evaluations are less negative if a chatbot rejects their requests compared to a real person. Study 1 consisted of a questionnaire survey through Prolific, an online platform for global participant recruitment, while studies 2 and 3 further supported the researchers’ assumptions using real-life scenarios.

Participants in study 2 were 200 university students in south China, who received gift vouchers from a fictitious company. They had the option to contact either an AI-powered chatbot or a human representative to redeem different gifts if they didn’t like the default one. However, all participants ended up receiving the default gift. Following this, the participants evaluated the service through a questionnaire. As expected, they show a greater level of acceptance towards service rejection from a chatbot.

Study 3 was also conducted in China and, due to the scenario’s design, involved only female participants. This study further indicated that consumers showed fewer negative attitudes toward the company when their request was rejected by a chatbot.

Emotional apologies can fall short

While the use of chatbots in rejecting service requests can mitigate negative impacts, the researchers also explored whether service outcomes will affect consumer reactions. “If consumers are more likely to attribute the service that they receive from a robot to a rule, rather than to the companies’ willingness to help, they should also appreciate the service less when their service request is accepted,” Professor Shen says.

travel-memory
It is inevitable that companies sometimes have to reject a customer’s service request.

In consistent with their conjecture, the research findings in study 4 indicate when consumers’ requests were resolved, their evaluations would be less positive if the service was provided by a chatbot.

In cases of service failure, it would be better if companies apologise to consumers with emotional messages, such as empathy or guilt, to acknowledge their suffering and take responsibility. However, the researchers found that emotional apologies from chatbots are not as effective as those from humans, and may lead to negative results.

“When an apology conveys emotional messages to consumers, they might perceive it as less sincere when it comes from a chatbot versus a human agent,” Professor Shen explains, adding that endowing machines with emotions may unsettle people as it challenges human uniqueness.

However, the results also showed that when the apology lacked emotional expression, consumers considered it equally sincere whether it came from an AI-powered chatbot or a human agent.

Making smart choices in different situations

While existing literature shows that people tend to draw a clear line between robots and human beings and demonstrate algorithm aversion, this research revealed a positive effect of chatbots. “Our findings suggest that consumers still prefer human agents. However, this does not mean that a human agent is always the best choice,” Professor Shen says. “When consumer’ service request is rejected by a chatbot, its perceived inflexibility serves as a buffer, potentially mitigating the negative impact of the service rejection on the overall evaluation of the service.”

RELATED ARTICLE

How To Detect and Deter Customer Misbehaviour on Social Media

He suggests that companies to utilise chatbots to offer explanations for failed service delivery, which could be cost-effective and most importantly, to alleviate the negative effect of service failure. Meanwhile, Professor Shen also reminds that managers should be aware that personalised services, such as apologies with emotions made by chatbots, may have the opposite effect.

As chatbots may not be suitable for services requiring emotional support or establishing emotional connections, Professor Shen says future research could investigate consumer satisfaction with various types of service agents (such as chatbots or humans) across different service requests.

Sustainable hotels are on the rise, ushering in a fresh approach to their promotion. The key lies in matching the correct environmental cues with the right guests

Sustainability has been the common goal across industry sectors. In the hospitality industry, sustainability does not only translate to making impacts but also profit. While the demand for eco-friendly qualities increases, hotels benefit from long-term cost savings by simply reducing energy and water consumption. It’s a win-win solution.

No wonder eco-hotels are gaining popularity. From installing filtered drinking water, embracing new technologies, using reclaimed building materials, to disclosing social impacts, these hotels boast their eco-efforts to appeal to guests. Additionally, having eco-certificates from international institutions like Green Globe, EarthCheck, Leadership in Energy and Environmental Design, and the like is also important to provide further assurances.

eco-hotel
Guests who focus on outcomes tend to prefer hotels with eco-certificates, while those who focus on processes lean towards eco-efforts.

However, not much is understood about how to promote green hotels effectively. According to the 2023 Sustainability Travel Report from Booking.com, 65 per cent of 33,000 surveyed travellers across 35 countries would feel better staying in accommodation if they knew it had a sustainable certification or label. Amid the growing concern about greenwashing or misleading environmental claims, a well-thought-out message is crucial to catering to sustainable-minded guests.

“The factors influencing tourists’ preferences for pro-environmental hotels are multifaceted and can differ significantly across demographic groups, but how eco-information is presented on booking platforms plays a crucial role,” says Lisa Wan, Associate Professor of the School of Hotel and Tourism Management and Department of Marketing at the Chinese University of Hong Kong (CUHK) Business School.

Along with Assistant Professor Elisa Chan from the same department and doctoral student Xue Nan, Professor Wan looked into different types of information on sustainability practices that influence guests’ preferences. It turns out that guests who focus on outcomes tend to prefer hotels with eco-certificates, while those who focus on the process lean towards eco-effort information. Additionally, demographic and geographic factors also matter.

“Younger people tend to prefer eco-hotels when the eco-effort information is highlighted, whereas older consumers are more influenced by eco-certificate information,” Professor Wan adds. “Other hotel segmentation bases—such as whether travellers are solo or in groups, or their cultural backgrounds—may also act as indicators of cognitive decision habits.”

Giving the right keys

As outlined in the paper titled How eco-certificate/effort influences hotel preference, the CUHK team analysed data across five studies deploying mixed methods to learn how eco-information influences tourists’ decisions. The study was based on the implicit theory of intelligence on whether or not intelligence or abilities can change, which explains two prominent cognitive decision habits: entity and incremental.

credit-default-swap

Entity theory views personal qualities as fixed, and those with entity decision habits tend to focus on the outcome. Meanwhile, incremental theory sees personal qualities as changeable and people with incremental decision habits are more likely to pay attention to efforts and intermediary processes.

When deciding on lodging, those with an entity decision habit lean towards hotels with eco-certificates as they value formal recognition and status. On the other hand, people with an incremental decision habit tend to prefer hotels that highlight their eco-efforts as they appreciate specific actions being taken.

Intriguingly, for those with incremental decision habits, the analyses also show that the perceived difficulty in obtaining eco-certificates may reduce the influence of eco-information. In this case, incremental thinkers acknowledge the extra miles needed to earn the certificates, which leads them to view certified hotels positively. This is reasonable as they appreciate process and dedication.

Another factor that comes into play is processing fluency, which refers to how the customers process the information. Customers would find it easier to grasp and engage with the information that matches their own decision-making style, and as a result, sway their preferences. In practice, eco-certificate cues will go well with entity thinkers and eco-effort messages will match more with incremental thinkers, thereby enhancing processing fluency.

Designing suitable strategies

As mentioned above, crafting a green campaign needs to consider the cognitive decision habits and processing fluency of the customers. However, Professor Wan notes that it is not strictly necessary for eco-hotels to promote both eco-efforts and eco-certificates to all guests universally. “The more effective strategy would be to tailor the promotion to align with customers’ cognitive decision habits,” she says.

Younger people tend to prefer eco-hotels when the eco-effort information is highlighted, whereas older consumers are more influenced by eco-certificate information.

Professor Lisa Wan

Previous studies have indicated that age can be a proxy for decision habits, with older people more likely to resort to an entity decision habit and youngsters leaning towards incremental decision habits. Moreover, people in Western countries tend to hold entity beliefs while those in Eastern countries tend to have incremental beliefs. The team’s follow-up studies confirmed these premises.

With that being said, Asians and young customers are more likely to focus on eco-efforts as they resonate more with process-focused information. In contrast, Westerners and elderly customers would appreciate eco-certificates more since they are inclined towards outcome-focused information.

sustainable-travel
Many customers would have preferred eco-hotels if the green initiatives or certificates had been made available earlier.

“The key lies in identifying and targeting the dominant cognitive decision habits of the guests to streamline the eco-information presentation accordingly,” Professor Wan explains. “It could be by tailoring their messaging to align with the cognitive beliefs prevalent in their target markets, particularly leveraging the popular digital platforms in the regions.”

For instance, hotels might focus on showing off their eco-certificates via social media to attract travellers from Western countries or emphasise their eco-efforts when targeting Asian guests. “This strategic approach allows hotels to cater to the varying cognitive preferences of environmentally conscious travellers in the digital age,” says Professor Wan.

Early cues get the books

While the results highlight various impacts of eco-information on individuals with different cognitive habits, in practice, most hotels opt for showcasing eco-certificates on reservation platforms. Those with incremental decision habits who are more effort-sensitive might find themselves struggling to buy it. The study suggests that displaying the efforts to get the certificate would help to bridge this gap.

“One of the primary challenges that hotels face is the clear communication of their ‘green’ attributes to enable tourists to recognise and understand the value of these efforts,” says Professor Wan.

RELATED ARTICLE

Throwing back travel memories to boost creativity

To demonstrate, Professor Wan explains, some hotels in the US did not experience a performance boost despite having eco-certificates, likely because many travellers are unaware of sustainable practices during the search and booking stages. At the same time, the industry survey, as pointed out earlier, found a significant number of travellers would have preferred sustainable hotels over regular ones if the information had been made available earlier.

“To overcome these obstacles, hotels need to present their green initiatives effectively at the booking stage,” she adds.

Ideally, financial markets should function with accurate asset prices, well-informed investors, and managers maximising shareholder value, but the fact has shown otherwise. How can we enhance market efficiency?

Amid the grand allure of money and wealth in the finance industry, many believe that the sole function of financial markets is to seek profit. While the pursuit of profit is undeniably a driving force, it is merely a byproduct of the vital function these markets serve.

Individuals and businesses can raise capital through the stock markets. Households with extra resources can buy stock of companies that need funding, and the companies then pay back dividends to households. Financial markets connect these two parties. When the company’s value appreciates, household wealth also appreciates.

“The entire process in financial markets is about resource allocation,” says Shu Tao, the Fung King Hey Memorial Professor of Finance and Chairman of the Department of Finance at the Chinese University of Hong Kong (CUHK) Business School. “The real question is, how can we optimally allocate resources, or how can we build an efficient and optimal financial market with rational economic agents?”

financial markets
Professor Shu presents an inaugural lecture with the theme of frictions and biases in the financial markets.

An efficient financial market would require asset prices to accurately reflect underlying fundamental values. In an ideal world, investors should be able to make optimal decisions by using all information to maximise their returns relative to risk levels. Meanwhile, corporate managers could adopt optimal policies to maximise the shareholder’s value. Unfortunately, the real world is very far from ideal.

History has recorded many violations and discrepancies that resulted in stock market bubbles, market crashes, and financial crises in the past few decades. So, what caused this turmoil? In an Inaugural Lecture of Fung King Hey Memorial Professorship in Finance in March titled Frictions and Biases in the Financial Markets, Professor Shu sheds light on frictions and biases that cripple financial markets.

Information asymmetry

Transparency is necessary for an efficient market. Without proper information, investors and stakeholders would not be able to correctly price the financial assets of a company, including stock or bonds. This imbalance is called information asymmetry, and in the financial market, it could be very severe.

According to a normal distribution—a probability distribution that describes all the possible values and likelihoods of a random variable—data near the mean are more frequent in occurrence than data far from the mean. As a result, the normal distribution appears as a bell curve when graphed, which is also known as a normal curve.

financial markets

However, Professor Shu’s 2019 research found that the earnings of Chinese publicly listed companies from 2005 to 2011 deviated from the normal curve. Moreover, having analysed similar data from 2013 until the end of the sample period in 2018, the result was pretty much the same, as can be seen in the picture. This means there was not much improvement in earnings management.

“If we compare this to the normal distribution, there seem to be missing pieces,” says Professor Shu. “This is what we call earnings discontinuity.”

Professor Shu explains, there are two possibilities for this. Chinese companies’ earnings may have a intrinsic characteristic that doesn’t follow a normal distribution, or some companies may manipulate their earnings reports. Although this earnings discontinuity also exists in the US and other developed markets, he observes that the magnitude in the Chinese market is significantly bigger.

“China is on the path from being a developing country to being a developed country, so we have to go through this process of improving financial market efficiency, but I think we need to speed it up,” says Professor Shu. “Therefore, I’m very glad to read a piece of news recently that says China published a set of rules to revive investors’ confidence.”

Improving transparency

In another research paper, The role of external regulators in mergers and acquisitions: Evidence from SEC comment letters, Professor Shu and his collaborators show that active government intervention can help. The researchers looked at the US Securities and Exchange Commission’s (SEC) “comment letter” process, where the regulator asks companies to clarify any potential issues within a certain period.

The study found that the comment letter process successfully reduced the information asymmetry in mergers and acquisitions (M&As) and increased market efficiency. “The goal is to make the market safer, more regulated and transparent,” he says. “This is definitely the right way to go.”

The entire process in financial markets is about resource allocation. The real question is, how can we optimally allocate resources, or how can we build an efficient and optimal financial market with rational economic agents?

Professor Shu Tao

Another paper titled A game of disclosing ‘other events’: A message to retail investors looks at Form 8-K, which has to be filed by companies with the SEC in case of major corporate events such as M&A, bankruptcy, departure of CEO, etc. Within this form, there is Section 8.01 (“Other News”), a voluntary disclosure of any other events the company deems important to report to security holders. While the SEC issued a very long and detailed protocol to file a Form 8-K, there is only a 64-word description for the 8.01 section.

“We suspect that this could be subject to manipulation by firm managers, and we found some evidence that this seems to be the case,” says Professor Shu. “At least, some firms seem to manipulate the tone or sentiment of these voluntary disclosures.”

The study found that companies engage more in “other news” manipulation when they need to temporarily push up or push down stock prices in the short term, i.e., pushing up stock prices before the executives sell their shares or, when the companies want to use the stocks as payment for acquisitions. Individual investors are more vulnerable to this manoeuvre. “This is not very surprising because individual investors are known to be less sophisticated than institutional investors.”

An example of behavioural bias in the financial markets: The winner’s curse

Classical economic and financial theories are based on the assumption of rationality, where the human mind operates like a supercomputer that processes all known information to make optimal decisions. However, these theories cannot completely explain many phenomena in financial markets.

For example, researchers have shown that US public companies lost a total of US$240 billion in their acquisitions from 1998 to 2001. Winners of takeover bids tend to perform worse than the losing bidders by 24 per cent over three years after the merger. In a paper titled Winner’s curse in takeovers? Evidence from investment bank valuation disagreement, Professor Shu and his collaborators look deeper into this phenomenon and a potential explanation based on “the winner’s curse”.

financial markets
The competitive bidding environment makes bidders in M&A transactions with no sufficient knowledge sway each other.

“It has been widely known that bidders perform poorly in M&A,” says Professor Shu. “The winner’s curse may contribute to poor bidder performance in M&A, although there’s a debate if this is true or not.”

A winner’s curse was first discovered by three petroleum engineers in 1971 after realising oil companies suffered unexpectedly low returns on their investments. Oil companies normally bid for the drilling rights on the oil fields merely by their own estimation without knowing exactly the value of the field. Oftentimes, after winning the bid, the company found out the actual value was much lower than the price they paid.

The engineers then published an economics paper and claimed that the mismatch was a result of cognitive bias. The competitive bidding environment makes bidders with no sufficient knowledge sway each other. The value of oil in the ground should have a similar value for all bidders, yet the bidders must fight to outbid their competitors.

“Someone wins in bidding because they pay too much, and they will not win if they pay a reasonable price,” says Professor Shu.

But what about in the case of a single bidder in M&A? Professor Shu gives an example to explain that the winner’s curse could still occur because only the target firm normally knows the actual value of itself. In this example, if the target firm accepts the bid, the takeover will happen. Professor Shu shows that, even if we assume the acquirer can create synergy or a new value that is equal to 50 per cent of the target firm’s value, the bidder will suffer a loss if its bid is accepted.

“With the same logic, the bidder only wins if they offer too much,” says Professor Shu. “The bidder should consider this conditional probability and lower their bids, while pondering the likelihood of winning or losing.”

RELATED ARTICLE

What and how to disclose when facing banking crisis

The winner’s curse is cognitive bias fueled by uncertainty of the target firm’s value. The higher the uncertainty, the more likely the winner’s curse take place. To prove this premise, Professor Shu and the co-authors apply a unique approach by looking at the takeover deals involving multiple investment banks. Each of these banks gave their advice on the valuation of the target company, and the researchers looked at the disagreements in the valuation between various investment banks to measure the uncertainty of the target value.

The analyses found that when there is a high level of disagreement, bidders tend to pay too much on average. Additionally, these bidders often have worse performance and create less new value. In short, those who win the bid are the ones that offer the highest price but not the ones that can create the highest value. The researchers also found the winner’s curse is more pronounced among overconfident CEOs. “It seems that a winner’s curse is an important manifestation of CEOs’ overconfidence,” Professor Shu adds.

New research explores the intricate relationship between multiple identities and creative performance, as well as the mechanism behind it

“Without creativity, there would be no progress, and we would be forever repeating the same patterns,” says Edward de Bono, an author and doctor who invented the term “lateral thinking”, a creative problem-solving approach by looking at unique perspectives and forging unforeseen connections.

Creativity is widely recognised as both a secret weapon for overcoming challenges and a catalyst for a brighter future. Employee creativity serves as the foundation for innovation, playing a pivotal role in enhancing organisational competitiveness, ensuring survival, and driving sustainable growth.

Several studies have explored how individuals’ identity influences their creative performance, but have not fully unveiled the relationship with multiple identities. While an identity refers to how individuals perceive themselves concerning a specific role they are associated with, multiple identities refer to how individuals define themselves based on several roles they have at once.

The more the information and knowledge individuals could access and retrieve, the more likely they could generate original ideas.

Professor Dora Lau

A group of researchers, including Dora Lau, Associate Professor (Teaching) in the Department of Management at the Chinese University of Hong Kong (CUHK) Business School, sought to find out whether multiple-identity holders are more creative, and if so, when and why this benefit occurs.

travel-memory-creativity
Creativity is widely recognised as both a secret weapon for overcoming challenges and a catalyst for a brighter future.

The study titled Are multiple-identity holders more creative? The roles of ambivalence and mindfulness was conducted by Professor Lau, in collaboration with Dr Wang Yangxin of the Central South University in China, and Professor Kim Youngsang of the Sungkyunkwan University in South Korea.

“Multiple identities provide people with multiple role perspectives and identity standards, and thus make them have multiple cognitive schemas and emotional frames, which further enhance their ambivalent experiences and creative performance,” says Professor Lau.

Ambivalence and creative performance

Existing literature suggests that individuals construct their self-identity based on various social roles, and several identities can be simultaneously salient. A person may see themselves not only from a single lens, such as their job, but also various other aspects of their identity, including their roles in the family, community, or even social club.

As a result, people with multiple identities may experience ambivalence—a simultaneous experience of opposite feelings or attitudes toward a given object, event, idea, or person—which primarily manifests in individuals’ cognitions and emotions. Cognitive ambivalence involves coexisting positive and negative thoughts, while emotional ambivalence involves conflicting or mixed feelings. A sense of inconsistency stemming from cognitive ambivalence will motivate individuals to actively seek information from their memory and current experience, providing more raw materials to generate new ideas.

“The more the information and knowledge individuals could access and retrieve, the more likely they could generate original ideas,” says Professor Lau. “Cognitive ambivalence also encourages individuals to simultaneously acknowledge and embrace opposing orientations, balance them actively, and enhance the usefulness of their ideas.”

nickel crisis

Individuals experiencing emotional ambivalence usually feel such a situation strange, prompting multiple-identity holders to interpret the environment as unusual and making them cautious. “Emotional ambivalence sustains individuals’ efforts in carefully analysing the environment and thus increases their persistence in creating new and useful solutions,” she says.

Multiple-identity holds greater ambivalence

In theory, both cognitive and emotional ambivalence should mediate the positive relationship between multiple identities and creative performance. Nevertheless, the research results revealed a more complex scenario.

The team conducted two studies to test their hypotheses with participants from mining and construction companies in China. In both studies, employees were invited to complete the questionnaire measuring their multiple identities and ambivalence, while their supervisors were invited to evaluate the employees’ creative performance.

The first study supported the premise that multiple-identity holders possess greater cognitive and emotional ambivalence, which enhances their creative performance. The second study also backed the same positive relationship, however, the link between multiple identities and creativity is mediated by emotional ambivalence rather than cognitive ambivalence.

“Perhaps respondents easily mixed their emotional and cognitive ambivalence experiences, two variables that are highly correlated,” says Professor Lau. “The effects of emotional ambivalence are strong, which cover the effect of cognitive ambivalence.”

Moderating role of mindfulness

The researchers then moved to investigate when the relationships between multiple identities, ambivalence and creative performance were stronger or weaker. Having considered existing literature, the researchers argued that mindfulness may strengthen the relationship between ambivalence and creative performance, and therefore strengthen the indirect impact of multiple identities.

travel-memory-creativity
Employees should bring their “multiple selves” to work rather than limit themselves to a certain and single role.

Mindfulness includes characteristics such as openness to new information, creation of new categories and an awareness of multiple perspectives. Highly mindful people are more attentive and sensitive to various perspectives compared to those with low mindfulness, which helps them understand the complexity and ambiguity of ambivalent experiences, preventing them from making simple and general conclusions.

The analyses proved that mindfulness plays a role in influencing the connection between having multiple identities and creative performance through emotional ambivalence. More specifically, when mindfulness levels are higher, the indirect relationship between multiple identities and creative performance through emotional ambivalence becomes more pronounced, but not for cognitive ambivalence.

However, in a separate study, the researchers did not find evidence that mindfulness moderates the direct relationship between ambivalence and creative performance. This highlights the complicated moderating effect of mindfulness. “It is also possible that if an individual is well aware of their inconsistent thinking, they would be more confused and spend more resources in organising their thoughts, which may decline their creative performance,” Professor Lau explains.

Anticipating drawbacks

In addition to presenting a fresh theoretical approach, the study also provides valuable insights for practical application. As multiple-identity holders are likely to be more creative, the researchers suggest that employees could enhance their ability to generate innovative ideas by thinking from the viewpoints of multiple roles. For instance, a male product designer can view his work in the roles of a designer, male, son, father, subordinate or supervisor.

Meanwhile, managers are recommended to assess whether candidates with multiple identities are more likely to align well with creative occupations. “Managers could encourage employees to bring their ‘multiple selves’ to work rather than limit the employees to a certain and single role,” says Professor Lau.

RELATED ARTICLE

Throwing Back Travel Memories to Boost Creativity

However, Professor Lau also reminds managers to pay more attention to the psychological well-being of multiple-identity holders because ambivalence can have negative influences. For instance, multiple identities, particularly those mutually conflicting ones, can often result in anxiety and confusion.

“Employees with multiple identities may face lots of confusion or indecisiveness because of their ambivalent experience,” she says. “Therefore, managers are suggested to provide some stress management programme or mindfulness training to those employees to help them deal with their confusion.”

In the age of unprecedented uncertainty, supply chains are under constant peril and duress. How can companies mitigate risks and build resilience? A new CUHK study offers some answers

Intricately woven supply chains spanning across the world are susceptible to disruptive events. Many cases have pointed out that the disorders in a part of the globe cause disaster elsewhere for delayed shipment, shutdowns in factories, and ultimately financial loss.

Just a couple of years back, the lockdown in China caused havoc beyond its borders as companies in the US, Australia, Vietnam and other countries were struggling to source crucial components and materials for their manufacturing. Not just that, a 2021 winter storm in Texas caused many chip manufacturers a power outage, forcing Korean giant Samsung to cut their production.

supply-chain-disruptions
As businesses across the globe keep reorganising their supply chains, the risks of encountering disruptions will be greater.

Furthermore, since 2020, the US Commerce Department has tightened exports to China’s largest chip manufacturer, Semiconductor Manufacturing International Corporation or SMIC, exacerbating what the analysts call “decoupling”. With the trade tensions ramping up, one can only assume this trend will accelerate.

“During the COVID-19 pandemic, about 75 per cent of US firms were reported to suffer from supply chain disruptions and 62 per cent of them experienced delays in receiving goods from China in 2020,” says Kevin Chen Hongfan, Assistant Professor of the Department of Decisions, Operations and Technology at the Chinese University of Hong Kong (CUHK) Business School.

With the background of current geopolitical tensions, companies worldwide are reshuffling their supply chains to survive the competitive market. This increases the likelihood of disruption with suppliers at many different times. “As its supply chain gets longer because of outsourcing or offshoring, a firm will very likely experience disruption at different tiers of suppliers at different times,” Professor Chen adds.

Therefore, developing a way to be resilient in the face of the calamitous effects of disruption becomes imperative. Given this urgency, Professor Chen and the department chair, Professor Sean Zhou, along with their doctoral student Zhu Yixin, delved deeper into this issue to provide some insight.

Centralised vs. decentralised networks

The study titled Supply disruption in multi-tier supply chains: Competition and network configuration examines expected profit, output quantity, and output variability in supply chains. The researchers found that positive and negative impacts depend on the type of disruption, completeness of the manufacturing network, and whether the supply chain is centralised or decentralised.

credit-default-swap

Using a combination of theoretical modelling, analytical techniques, and numerical simulations, researchers examined supply disruption in a three-tier supply chain network. Tier-2 suppliers obtain raw materials, produce, and then feed tier-1 suppliers, which in turn, manufacture and sell to tier-0 original equipment manufacturers (OEMs), which produce parts and equipment to be marketed by other companies.

The result suggests that supply chains are prone to disruption whether they are centralised or decentralised. A centralised supply chain means the entire supply chain is owned and jointly managed by OEMs, while in a decentralised one, each part is run by an independent firm that decides on its production quantity to maximise profit.

The disruption in tier-1 suppliers was found to result in lower profits and output in the centralised supply chain, yet this is reversed in the decentralised chain if the successful production rate and material cost are low. A strategic implication for OEMs is that if they allocate less resources to risk mitigation, they ultimately spend more on tier-1 suppliers.

The researchers note that the supply chain is not always complete, as not every location can be supplied by the same firms. “This network structure depends on how manufacturers choose their suppliers, which is a long-term process with strategic considerations such as business environment, infrastructure, labour supply, geopolitics, tax and tariffs,” says Professor Chen.

For instance, Chinese car maker Greatwall and US automobile manufacturer Ford have established their own unique tier-1 and tier-2 supplier bases, apart from their common supplier bases. Having more suppliers at hand is an absolute necessity in today’s fragmented markets.

Managing risk in fragmented worlds

Network incompleteness is frequently attributed to political tensions, making for trade barriers among firms globally. In an ideal world, goods would move seamlessly across borders, but when the network between tiers is incomplete, the missing links can cause disruption.

As its supply chain gets longer because of outsourcing or offshoring, a firm will very likely experience disruption at different tiers of suppliers at different times.

Professor Kevin Chen Hongfan

“In this incomplete network, when disruption occurs in its supply chain, it is costly, if not impossible, for a firm to immediately find an alternative qualified supplier to avoid the impact of the disruption,” Professor Chen explains. “Instead, risk mitigation actions, including diversifying the supplier base, should be planned long before the event occurs.”

The study found that the negative impact of disruption (measured by the profit loss relative to the case without disruption) can reach 15 per cent in the complete network and 18 per cent in the incomplete one. In short, a centralised supply chain may not protect from the chaos.

supply-chain-disruptions
Firms should plan risk mitigation actions well in advance, as finding an immediate alternative supplier can be costly.

“The centralised supply chain may not necessarily be more robust than the decentralised one when facing disruption risk, as we might expect. Meanwhile, the network incompleteness impacts the decentralised supply chain profit more than that of the centralised one,” Professor Chen adds.

Putting out supply chain flames

More understanding can be gained when examining disruption and the importance of supply chain visibility. This could be especially helpful for firms that wish to proactively manage risks through monitoring, establishing a network of back-ups, and creating a surplus inventory.

The study found that network incompleteness would amplify the negative impacts of disruption, especially when a reliable well-known firm with a strong track record is located in an unreliable tier of the supply chain, which is prone to business disorder and supply chain disturbance.

In terms of profit impacts within tier-1 disruption, an incomplete upstream network in a centralised supply chain makes a higher profit than an incomplete downstream network, while in a decentralised chain, an incomplete downstream network generates a higher profit only when disruption risk is high.

In centralised and decentralised supply chains, output is more stable under tier-1 than tier-2 disruption, and network incompleteness amplifies the output variability. The researchers assert that effective supply chains need to have a higher flexibility of downstream firms than upstream firms, except when disruption risk is higher, and the supply chain is decentralised.

RELATED ARTICLE

Can component manufacturers outgrow themselves?

“By understanding how disruption position and network configuration affect output variability, supply chains can make informed decisions to improve their output stability when needed,” says Professor Chen.

Firms have many types of vertical integration in their supply chains, and ultimately, resources are limited. In an unpredictable era, building flexible sourcing relationships across several tiers of the supply chain is essential, or as the popular proverb goes, “Don’t put all your eggs in one basket”.

Want even more insights?

Enjoy the best and most relevant articles monthly with a subscription to CBK's digest.