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 showed 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.

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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.

Nickel crisis nearly caused the London Metal Exchange and its members to collapse. An expert at CUHK Business School unveils how failure to recognise a thin line between hedging and speculation contributed to the catastrophe

The reopening of the global economy has seen strong commitments from countries around the world to achieve net-zero emissions by adopting electric vehicles to replace traditional diesel ones. As a result, the demand has turned nickel, one of the main ingredients in rechargeable batteries and stainless steel, into the most sought-after material.

However, nickel almost brought down the London Metal Exchange (LME), the world’s largest and oldest trading venue for industrial metals, two years ago. Over the course of three days, the nickel price traded on the bourse surged by more than 270 per cent from US$27,080 per tonne to more than US$100,000 on 8 March 2022 before falling to around US$80,000 per tonne.

nickel crisis

The LME took action by suspending the trading and returning the price to the previous date, cancelling billions of US$ in transactions. The 147-year-old bourse saw it necessary to prevent a “death spiral” that could have led itself and its members to collapse. One of the members, a Chinese company and world leader in nickel production, Tsingshan, was saved from the verge of losing US$8 billion.

“The trigger point for this sudden price surge was the Russian invasion of Ukraine, which started on 24 February 2022,” says Dr Anson Au Yeung, Senior Lecturer in Finance at The Chinese University of Hong Kong (CUHK) Business School. “Market participants expected a sanction on Russia, which produced around 17 per cent of the global supply of nickel.”

In a masterclass on “Risk Management Strategies in Financial Derivatives: Hedging vs Speculation?” in January 2024, Dr Au Yeung delved into the complexities of the incident and how Tsingshan could have avoided the predicament.

Series of unfortunate events

As a major producer, Tsingshan’s profit and loss are highly affected by nickel prices. To protect itself against price fluctuations, the nickel producer sells a financial instrument called futures, which is a contract to buy or sell a particular commodity asset at a predetermined price at a specified time in the future.

With this contract, the company can protect itself against price drops by entering into short positions in futures, which means it locks today’s price to be sold in the future. If the company expects rising prices, it can enter long positions by locking in a future purchase price. This strategy to limit risks in financial assets is called hedging, and Tsingshan has built up a massive short position since 2021.

Dr Anson Au Yeung
Dr Anson Au Yeung shares his insights during the master class.

“Hedging is not simple,” says Dr Au Yeung. “We need to question whether Tsingshan is actually doing hedging or speculation.”

Before the fiasco, Tsingshan had accumulated a short position of 300,000 tonnes in early March 2022. Although the company produced around 600,000 tonnes of nickel annually, around 120,000 tonnes of these total productions were nickel matte, which only has 70 per cent purity, well below the LME’s strict requirement of a minimum of 99.8 per cent purity.

This indicated that the company hedged the high-purity nickel with low-class nickel. In the good days, the prices of both nickels were highly correlated, but the company didn’t expect the prices would deviate greatly during the crisis.

“A perfect hedge is not possible. The cross hedging replaces commodity price risk with basis risk,” says Dr Au Yeung. “Using the LME nickel to hedge lower-class nickel would also introduce an additional risk called short-term basis risk, and this risk should not be overlooked as it can be very huge.”

Basis risk is the potential risk that arises from mismatches in a hedged position. “The spread between high-quality and low-quality nickel widened to 8 to 12 per cent due to sanctions against Russia.”

Weighing the escape routes

Dr Au Yeung argues, Tsingshan could have considered three scenarios to deal with this short-squeeze situation before the LME intervened. The first one was retaining the short position, which mainly hoped the price would go down. The second one was to surrender and accept the loss. The third one was buying nickel from the market.

Hoping the price to go down would require Tsingshan to continue satisfying the margin call, prompting it to settle initial and variation margins. When the value of an account drops below the maintenance level, a margin call is triggered to require the account holder adding funds to bring the account back to the initial margin, which is the amount of money needed to initiate a futures contract.

If a company doesn’t have good risk management practices, even though it makes a significant profit, it can lose all of the money very easily

Dr Anson Au Yeung

On 4 March 2022, the LME increased the initial margin requirement by 12.5 per cent, which would require Tsingshan to deposit US$7.5 million. It also required the company to deposit an extra US$6.35 billion on 7 March, based on the variation margin derived from the difference between the closing price on both days, multiplied by 300,000 tonnes.

If surrendered, at the US$80,000 per tonne level on 8 March, Tsingshan would expect to lose US$18 billion. The last option, buying nickels from the market, mainly from Russia, was impossible due to the sanctions announced in February.

nickel crisis

“The futures contract has a zero-sum game principle, which means when the seller loses, the buyer wins, and vice versa,” says Dr Au Yeung. “So, why did the nickel buyers were willing to take the opposite position? Because they did see one weakest point, Tsingshan’s liquidity management.”

Small mistakes, huge consequences

In early March 2022, the LME’s nickel inventory only had 76,800 tonnes ready for physical delivery. Meanwhile, the total outstanding contract or average open interest in the contract reached 1,158,000 tonnes.

“This means the counterparty already foresaw Tsingshan would not be able to get the physical nickel in the freight because there was not enough nickel in the market, and it takes time to source and refine the nickel,” says Dr Au Yeung.

Tsingshan management also underestimated the market volatility of nickel. Looking at the standard deviation, the magnitude of the maximum daily three-month price growth and the number of times daily three-month price moves, nickel price is more volatile than other metals like lead, zinc, copper and aluminium.

“The buyers saw a low nickel inventory and it triggered the market speculation,” he says. “The imbalance between the market expectation and the physical supply increased the price volatility and risk.”

Hedging through the futures contract met the margin calls requirement. However, when the market suddenly becomes so volatile, it would cause a huge cash flow impact.

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“When making any risk management or financial decisions, the management needs to have an accurate estimate of the worst-case scenario,” Dr Au Yeung says. “In this case, Tsingshan did not fully estimate the worst case.”

Finally, he highlights that having good investment decisions and financing strategies is not enough. “If a company doesn’t have good risk management practices, even though it makes a significant profit, it can lose all of the money very easily.”

How can companies innovate? New research suggests clear goals can harm, and the answer lies in giving employees the freedom to make decisions

In today’s competitive business environment, innovation is an often-heard mantra that eclipses all else. At the same time, teamwork has also gained greatly in importance, supported by the rise of workplace tools such as Slack, which have brought a “social media” design to collaborative corporate culture. While organisations must have individuals working together to create innovation, do excellence and innovation actually arise from having clearly defined goals that all employees must universally support?

This is a question set out in a new study by Dr John Lai, Senior Lecturer at the Department of Management at the Chinese University of Hong Kong (CUHK) Business School. Will goal clarity lower team innovation? A moderated mediation model of inter-team trust is a body of research between Dr Lai and Steven Lui at the UNSW Business School, Ben Luo Nanfeng at Renmin University of China, and Peter Moran at China Europe International Business School. Their work challenges conventional views that clear goals make innovation more likely.

team innovation
A clear strategy makes for more cohesiveness among teams, while a trusting environment would bolster innovation with more knowledge acquisition and sharing.

“When a team’s goal is clear, team members become more selective in the information they are motivated to seek and acquire and less selective in what they screen out,” says Dr Lai. “This resulting selectivity and commonality of knowledge sought by each team member suggests that the team as a whole is more likely to acquire less knowledge.”

Many existing studies have assessed the question of whether clear goals foster innovation due to a “team climate” or “knowledge integration” perspective. In team climate thinking, a clear strategy makes for more cohesiveness among teams. From a knowledge integration point of view, if the workplace is a trusting environment, innovation should further increase with more knowledge acquisition and sharing.

Dr Lai and his collaborators challenged the team climate perspective for neglecting how having clear goals affects gathering and disseminating knowledge. As the researchers point out, goal clarity could inadvertently restrict learning. The team also indicated that while trust is crucial to innovation, it is not uniform or universal within organisations. Some colleagues and teams can get along, while others have relationships that are marked by distrust. This will impact how much innovation can take place.

Debunking the myths of innovation

The researchers point out that previous studies have not resulted in a clear link between the impacts of team climate or knowledge integration perspective towards innovation. “Research often takes on a reduced form of hypothesis, where no empirical test of the specific mediating mechanism is reported,” Dr Lai points out.

Meanwhile, an increasing number of recent studies have demonstrated that knowledge transfer in an organisation is unrelated to innovation, and is much more specific to individual team relationships. Could this mean that if certain people or teams are particularly talented, they should be left to their own devices and away from the company-wide dictates and goals?

Our finding suggests that while goal clarity does not reduce the amount of knowledge acquired from other teams, it reduces the impact of the acquired knowledge on team innovation.

Dr John Lai

The gap was there that obviously needed to be bridged, and the team set about addressing this with a moderated mediation model. This showed how the interaction of goal clarity and inter-team trust impacts innovation, while looking at knowledge inflows within the symbiosis of inter-team trust and innovation. To test the model, the researchers examined service innovation at 150 outlets of a large apparel retailer in mainland China, Hong Kong and Macau.

There were several criteria involved in choosing these companies – continuous knowledge sharing through regular training workshops for shop managers, the importance placed on company-wide innovation, a recent corporate-wide brand revamp, and staff being introduced to new practices, with managers being able to adopt at their own pace. The study used two questionnaires in Chinese, one that was answered by retail shop managers and one by retail staff, along with 14 interviews with senior managers within the organisation. All studies were kept confidential to eliminate bias.

Goal clarity is a double-edged sword

In the age of social media and ever-increasing consumer demands, innovation is ever crucial to sales and profits. Retail was chosen as the arena for this study, as the stores are run by teams that sell an existing product and innovate to serve customers better. This study is important to show clear goals can have a negative effect on innovation, while trust only supports innovation when team goals are less clear.

team innovation
Clear goals can have a negative effect on innovation, while trust only supports innovation when team goals are less clear.

Having goal clarity is a double-edged sword for innovation, which according to Dr Lai “reinforces a shared mental model and hence sustains and amplifies the cognitive bias of a team that will restrict the acquisition and interpretation of external knowledge.”

This crucial aspect is often overlooked by previous studies, and can also be applied to the concept of trust. Dr Lai and his collaborators found that inter-team trust and innovation are linked positively when goal clarity is low. However, trust is hard to define within an organisation, and there are myriads of overlapping relationships between team leaders, co-workers, other teams and departments. In general, the connection between trust and innovation fluctuates significantly.

“Our finding suggests that while goal clarity does not reduce the amount of knowledge acquired from other teams, it reduces the impact of the acquired knowledge on team innovation,” says Dr Lai.

Harmful group-think can be avoided

The study offers practical advice for retail operators – teams competing for sales can nonetheless benefit each other by sharing knowledge of local markets, customers and inventory levels. “It is useful for business firms to build a trusting relationship among their work teams rather than advocating a hostile competition-based atmosphere that has become common in the retail industry nowadays,” says Dr Lai.

Having said that, managers need to be highly attuned to the cognitive biases that goal clarity creates among team members. “When goals are clear, team members could be biased against the use of new ideas and practices, and such bias could harm innovation,” Dr Lai adds.

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With clear goals, the net positive effect that knowledge transfer has on innovation can be harmed. This is especially the case when managers have been assigned clear performance goals for their teams. As the study pointed out: Goal clarity benefits innovation, while cognitive bias deters innovation. The double-edged sword of goal clarity is an increase in biases and a reduction of knowledge transfer through inter-team trust.

To reduce bias, managers can seek to add diversity to their teams. This could be gender, cultural, educational, and personality-wise. They may also rotate people across teams. “Greater team diversity and personnel rotation may lower the tendency of group think. Importantly, both are readily employable in the retail sector,” says Dr Lai.

A new study reveals that cultural diversity among investors can lead to abnormal stock trading volume, and firms headquartered in culturally diverse places are more prone to crash risk

Corporate earnings can ultimately affect stock prices. In February, when chipmaker Nvidia announced its record-high quarterly revenues of US$22.1 billion, almost triple from the previous year, the company’s stock price soared by 14 per cent within hours. Meanwhile, in the same month, Alibaba Group’s disappointing quarterly earnings sent its stock price lower by 6.1 per cent year-on-year.

Publicly traded companies are required to disclose their profits so external investors can learn crucial information when making financial decisions. Consequently, investors’ concerns regarding corporate performance will be reflected in the stock markets.

stock trading
Different understandings of identical earnings reports among investors lead to elevated trading volume and stock return volatility.

Considering the significant impact of such disclosure, it is crucial to understand the factors that influence investors’ perceptions. A new study entitled Investor cultural diversity and market reactions to corporate earnings announcements delves deep into this question. Specifically, it focuses on the role of cultural diversity, measured by the extent of linguistic diversity, among investors.

After analysing earnings reports issued by listed companies in China, the results suggest that a wider variety of dialects spoken among investors leads to greater differences in interpretations, which eventually affects stock trading activities.

“Heterogeneous interpretations of identical public signals among investors lead to elevated trading volume and stock return volatility,” says Kevin Tseng, Associate Professor of the School of Accountancy at the Chinese University of Hong Kong (CUHK) Business School.

Professor Tseng conducted this study in collaboration with Professor Chang Yen-Cheng of National Taiwan University, Professor Su Yu-Siang of National Chi Nan University, and Professor Wang Na of Hofstra University.

Different cultures yield varied interpretations

Previous research have demonstrated that different understandings of news surrounding earning reports can cause elevated trading volume and stock return volatility, but how could the same announcement have various interpretations? Professor Tseng argues that investors may use the same announcement but infer value-relevant information differently.  In other words, investors can have unique “economic models” that help them interpret market news and signals.

“Linguistic diversity is our empirical measure to capture cultural diversity among investors,” says Professor Tseng. “We test whether investor diversity translates into diverse views on how an earnings announcement maps into stock valuations. If investors have divergent views regarding stock valuations, they will trade more in the market, leading to elevated volatility.”

A diverse investor base has more heterogeneity, and they may have more creativity in interpreting the value relevance of market signals.

Professor Kevin Tseng

To test their hypothesis, the researchers collected data from the China Stock Market and Accounting Research, as well as a nationwide record called the Language Atlas of China, which contains a detailed classification of local linguistic features. While the country has the same written language, there is a rich variation in spoken languages. In this research, investor cultural diversity is defined as the number of languages spoken in a province.

Using this data, Professor Tseng and his collaborators studied how investor cultural diversity in a company’s home region is related to trading volume and return volatility around earnings announcements. The sample period ranges from reports issued from 1998 to 2019.

Cultural diversity spurs market reactions

The researchers use two metrics to measure how different investors interpret information when a company announces its earnings: abnormal trading volume and return volatility in a three-day window. Abnormal trading volume refers to the unusual amount of stock trading during a specific period, while abnormal return volatility refers to the deviation of a stock’s return volatility around an earnings announcement from what would be expected based on historical patterns or market norms.

The result showed a significant positive effect of linguistic diversity on abnormal trading volume. A one-standard-deviation increase in the cultural diversity measure leads to an increase in abnormal trading volume by 10.29 per cent. Similarly, investor cultural diversity is also positively associated with abnormal return volatility.

cultural diversity investors
Negative information is more discernible during a slowdown when investors have different understandings of the market.

“A diverse investor base has more heterogeneity, and they may have more creativity in interpreting the value relevance of market signals,” Professor Tseng explains, adding that the results remain strong even when they consider various factors such as demographics and different ways of measuring cultural diversity and trading volume.

Existing literature shows that negative information tends to be more noticeable during market downturns when investors have different interpretations of what to do. This can lead to stock price crash risk, referring to the tendency of stock prices to experience significant downward movements.

Professor Tseng and his collaborators then investigated whether stocks with elevated levels of investor cultural diversity have higher stock price crash risk. They anticipated that companies located in areas with high cultural diversity, where investors exhibit greater disagreement regarding firms’ financial disclosure, would encounter a higher level of crash risk. “Overall, our results are consistent with the prediction that investor cultural diversity leads to elevated stock price crash risk,” he says.

Clear and concise announcements matter

One of the purposes of accounting disclosure is to make sure that all investors have equal opportunities, and this study offers a fresh perspective for addressing this objective. On top of that, Professor Tseng suggests that firms should be aware of the local social landscape, apart from purely financial or accounting factors, which also plays a role in how investors responding news.

“Linguistic diversity is our empirical measure to capture a critical aspect of investor cultural diversity,” he adds. “More broadly, our results apply to other aspects of diversity, to the extent that investors may have differential views on economic issues, which may include nationalities, ethnicities, and gender.”

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Overall, the study highlights a social factor that has implications for capital markets. The findings emphasise the significance of diversity and underscore the effectiveness of communication with investors through disclosures.

To avoid ambiguities, Professor Tseng suggests firms cover quantitative and qualitative aspects of their announcements as clearly and concisely as possible. Additionally, allocating resources towards investor relations and collaborating with media outlets or financial intermediaries, such as analysts, would be useful to improve communication with diverse investors.

While intuition can be a valuable tool, it can also deceive us. A new study delves into the reasons why blindly trusting your gut is not the best approach

Have you ever found yourself in a situation where you made a decision that later turned out to be wrong, but you felt stuck and couldn’t change your mind? It’s like when you confidently solve a math problem, only to realise later that you made a mistake. Or perhaps you bought something you didn’t really need, only to regret it later.

Well, you’re not alone. A new study has shown that this is actually quite common. The way our brain makes decisions is more complex than we thought. Take a classic quiz called the “bat and ball problem” below to understand how people make decisions.

A bat and a ball cost US$1.10 in total. The bat costs US$1.00 more than the ball. How much does the ball cost?

A significant number of participants in the study failed to solve the problem, even after getting the hint that the 10 cents was the wrong answer. In another experiment with the same question, the researchers gave the respondents the correct answer, but many were still stuck with their initial responses. And if you’re struggling too, you may find the answer at the end of this article.

The result of the study showed that our first thoughts can be really strong, and it can be hard to change our minds once we have made a decision.

bat and ball problem
A bat and a ball cost US$1.10 in total. The bat costs US$1.00 more than the ball. How much does the ball cost?

“The biggest takeaway from this research is that initial conclusions can be very sticky, even if they were based on very little thought, and even if there’s simple logic that contradicts them,” says Andrew Meyer, Research Assistant Professor with the Department of Marketing at the Chinese University of Hong Kong (CUHK) Business School.

The study, conducted by Professor Meyer along with Professor Shane Frederick of the Yale School of Management, focused on how our intuition can sometimes lead us astray. So, how can we minimise these misleading hunches?

Two schools of thought

The study titled The formation and revision of intuitions documents Professor Meyer and Professor Frederick’s attempts to investigate methods to encourage reflective thinking and found that incorrect intuition often persists despite an additional reflection. They highlight that sometimes our quick, intuitive thoughts can be tricky, and it’s important to take our time and think things through carefully.

Furthermore, the researchers argue that the human brain has two systems for making decisions: system 1, which is fast and intuitive, and system 2, which is slow and analytical. Unfortunately, system 1 processes often override or corrupt system 2 processes, which means that people often rely on their intuition rather than taking the time to reflect on a problem.

“In other experiments, we told one group of people that a bat cost US$100 and a ball cost US$10, and we asked another group to solve the bat and ball problem for the prices of both objects, which most people said were US$100 and US$10,” says Professor Meyer. “Then, we asked everyone whether the prices differed by US$100.”

In the group that was given both prices, hardly anyone made the mistake of thinking that these two prices differed by US$100. But in the group that generated those two prices themselves, three-quarters went on to try justifying their answers by arguing how they differ by US$100.

“This suggests that once people have made a mistake, later logic that would show it to be a mistake is often corrupted in a way that prevents them from realising their error,” Professor Meyer explains.

Once people have made a mistake, later logic that would show it to be a mistake is often corrupted in a way that prevents them from realising their error

Professor Andrew Meyer

“The only way we could stop people from giving the erroneous intuitive response was by changing the question so that the easy calculation no longer led to a plausible answer,” he adds. “One takeaway is to expect lots of errors if there is an easy calculation that leads to a plausible answer.”

Practical implications

Dual system theory suggests that both systems work together to help individuals make decisions and judgments. However, the balance between the two systems can vary depending on the situation and individual differences.

This theory can be applied to various fields, including psychology, neuroscience, economics, and decision-making. It has been used to explain a wide range of phenomena, such as cognitive biases, heuristics, and decision-making errors.

“I would expect a lot of these forces to be particularly powerful in financial decision-making, where there are many potential calculations, and easy ones often lead to wrong answers and bad decisions,” says Professor Meyer.

dual system theory
Dual system theory can be powerful in financial decision-making, where there are many calculations and rooms for error.

For instance, if a person borrows US$100 and has to pay back US$10 per month for a year, the total payment would be US$120. Some might think that this is a 20 per cent effective annual interest rate. However, this would only be true if US$120 is paid at the end of the year.

As the borrower has to pay most of it back much earlier, the loan becomes a lot worse than a 20 per cent effective annual rate. Taking into account the impact of compounding – the process of earning interest on the original amount borrowed and the accumulated interest from previous periods – then the effective annual interest rate is actually 41.3 per cent.

“One prediction from the bat and ball research is that people will not only make the initial mistake and think that this monthly instalment plan is a 20 per cent effective annual rate, but persist and continue to make that mistake even if the logic, that the loan is paid back in much less than a year, is made clear to them,” Professor Meyer adds.

Does extra time help?

The researchers believe that solving the bat and ball problem requires deliberate thinking. Those who manage to solve it take much longer time, and solution rates are markedly reduced after imposing time limits or cognitive load. Therefore, in situations where time is limited, the intuitive system may dominate.

“Time pressure greatly reduces bat and ball solution rates, but encouraging people to take extra time has little effect, which is somewhat disappointing” says Professor Meyer.

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Although a previous study suggests that many people can solve the problem intuitively, Professor Meyer is skeptical as the respondents in the previous study answered various modified versions of the problem, and many “intuitive” solutions came from later trials that participants had encountered repeatedly. The researchers believe that it’s crucial to differentiate between intuiting an answer and quickly applying a previously learned solution strategy.

Circling back to solving the ball and bat problem, setting up a simple equation will help. If “x” is the cost of the ball, then the cost of the bat is x + 1 and the total cost is x + (x + 1) = 1.10, or it can be simplified to 2x + 1 = 1.10. After subtraction and division, we get x = 0.05. Therefore, the ball costs US$0.05 or five cents.

A recent study shows that herd-like behaviour could undermine a crowdfunding project, but establishing an all-or-nothing threshold can counteract this effect

Startups often face the challenge of securing funding to scale up their operations. How are they going to get their first bucket of gold? In the modern era, crowdfunding has emerged as an alternative to traditional financing like bank loans or angel investments for its edge to raise funds from a large pool of individuals, while showcasing innovative ideas to a broad audience.

Today, crowdfunding is now a mainstream capital source for entrepreneurs. According to a recent report by Fortune Business Insights, the global crowdfunding market is expected to reach US$3.62 billion by 2030, growing at a compound annual rate of 14.5 per cent.

Comparable with a real-life crowd, economic interactions in crowdfunding platforms normally see investors following others by relying on simple observations to make decisions without pondering their own critical thinking. This phenomenon is called an “information cascade”, which can lead individuals to restrain their true preferences, leading to herd-like behaviour and distorting the perception of project quality. As a result, funded projects attract more backers while unfunded projects struggle to gain traction.

Information cascades can occur in various settings, including financial markets, social media, and consumer behaviour, where individuals are influenced by the actions of others. In crowdfunding, this can result in flawed information gathering as individuals may not contribute their knowledge to the collective process and amplify errors in decision-making, which results in suboptimal outcomes.

The implementation of all-or-nothing thresholds in crowdfunding can improve project feasibility, efficiency and information aggregation.

Professor Xiao Yizhou

To address this issue, a recent study suggests that implementing an all-or-nothing threshold, where the proposer receives all contributions only if the campaign reaches pre-specified funding, can help. This model is an alternative to keep-it-all and partial funding models, where the campaign creator is allowed to retain all or a portion of the funds raised, irrespective of the goal achieved.

“The implementation of all-or-nothing thresholds in crowdfunding can improve project feasibility, efficiency and information aggregation,” says Xiao Yizhou, Associate Professor of the Department of Finance of The Chinese University of Hong Kong (CUHK) Business School.

The real decision-maker

Professor Xiao notes that many projects in the real world can be only implemented after reaching a certain funding goal or threshold. With an all-or-nothing threshold, the project would not take off if the crowdfunding does not reach its goal, and the funds are returned to the supporters, leading to a more efficient allocation of resources.

Professor Xiao, along with Professor Cong Lin from Cornell University, in their study titled Information Cascades and Threshold Implementation: Theory and an Application to Crowdfunding, explain that a crowdfunding campaign begins with a certain number of potential investors whose decisions inspire others. Before making any decisions, investors receive and collect informative signals while observing the actions of preceding investors.

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The gatekeepers, who have observed a longer history of preceding supporters can make a more informed decision to influence subsequent supporters.

“Through game theory and economic modelling, our analyses showed that all-or-nothing threshold implementation drastically alters informational environments and economic outcomes,” says Professor Xiao.

As the campaign progresses, reaching the funding threshold becomes dependent on the decision of a supporter whose contribution will bring the total funds to the threshold. These supporters are referred to as “the gatekeepers” by the researchers. Considering this circumstance, people are more eager to contribute with all-or-nothing thresholds as it would lead to “uni-directional cascades”. This occurs when early supporters delegate their key decisions to the gatekeepers, who have observed a longer history of preceding supporters and can make a more informed decision to influence subsequent supporters.

While information cascades refer to the phenomenon of individuals relying their decisions more on observed actions than on their own information, uni-directional cascades specifically describe a sequential pattern of decision-making where individuals are influenced by the actions of those who have made decisions before them.

“Individuals with positive signals will always support because they essentially delegate decisions to the gatekeeper. The gatekeeper is the last one to reach the threshold and the real decision-maker,” says Professor Xiao. “This delegation hedges against mistakenly supporting a bad project because the subsequent gatekeeper makes the contribution decision with better information by observing a longer sequence of previous actions.”

Although people may make emotional decisions in real life, Professor Xiao highlights rational investors tend to send accurate signals they receive to the gatekeeper. Investors or supporters in crowdfunding campaigns can signal each other through their contributions, endorsements, information sharing, engagement with project creators, early support, and the like, which significantly impact the perceptions of potential supporters in the ecosystem.

Positive implications of thresholds

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crowdfunding is now a mainstream capital source for entrepreneurs.

The presence of all-or-nothing thresholds in crowdfunding has several positive implications. Firstly, it enhances project feasibility by supporting good projects with high production costs. Without a threshold, the first investor may reject even with a positive signal due to high production costs. However, with a threshold, investors are incentivised to support such projects. Secondly, these thresholds improve project implementation efficiency by ensuring that projects are pursued only when there is strong confidence in their positive quality, which prevents premature or suboptimal implementation.

Furthermore, all-or-nothing thresholds enhance information aggregation, particularly in the context of a large crowd. When investors realise that they are not the sole decision-makers, they become more inclined to support a project. At the same time, they also recognise the responsibility to convey the right signal to the gatekeeper. Therefore, individuals at the back of the sequence possess more knowledge than those at the front, resulting in improved information aggregation.

On the other hand, a higher threshold, albeit less likely to be reached, can achieve a higher contribution price by allowing more individuals to participate in the crowdfunding process. “In general, a larger crowd mitigates the concern about implementation failure and generally permits a higher optimal price,” Professor Xiao says.

Providing insurance to investors

The findings of this research shed light on how crowdfunding projects can be made more successful, particularly by emphasising the crucial design of all-or-nothing thresholds. By implementing all-or-nothing thresholds, the information aggregation, proposal feasibility, and project selection of crowdfunding projects will be improved.

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Additionally, as the number of investors approaches infinity, project implementation and information aggregation achieve socially efficient levels, even if there are some challenges in getting and sharing information. “Enough investors in the market can kill the information cascades,” Professor Xiao says.

In general, the implementation of thresholds in crowdfunding campaigns offers a promising solution to address the challenges associated with information cascades.

As crowdfunding continues to gain prominence as a capital source, Professor Xiao says that companies can adopt marketing strategies that provide insurance to investors, reassuring them that costs will only be incurred if there is sufficient collective support, “People won’t worry too much if they know they are not the only one to jump in.”

Business leaders from different industries share their insights on how innovation, sustainability, and talents are shaping the future business world at CUHK Business School’s alumni forum

Human life and business are at a crossroads as the new era of AI technology and rapid climate change brought existential questions to the forefront.

The explosive use of the new AI tool ChatGPT since late 2022 has raised such questions as whether it will benefit our work and life or become a threat to us. Additionally, people around the world are experiencing more frequent extreme weather events this year, such as wildfires in North America and Europe, as well as rainstorms and floods in China and Africa. In the face of these climate challenges, sustainability is an issue that needs to be addressed more urgently than ever.

In light of these trends and transformations, business talents are facing both opportunities and challenges. They need to decide where to invest their time and energy to sustain their professional growth in the coming years. To shed light on this topic, four business leaders shared their observations and thoughts on innovation, talents, and sustainability in the present and future business world at a panel discussion. The panel discussion was moderated by Kalok Chan, Wei Lun Professor of Finance and Chairman of the Department of Finance at The Chinese University of Hong Kong (CUHK) Business School, and was held as part of the School’s Global Alumni Forum 2023.

Adapting to a Changing World

To kick off the event, Prof. Chan invited panel speakers to share the latest business trends in their sectors.

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Dr. Paul Sin (MBA 2002), Director of Technology & Transformation of New World Development Company Limited, discussed the influence of AI on the workforce.

Dr. Paul Sin (MBA 2002), Director of Technology & Transformation of New World Development Company Limited, discussed the influence of AI on the workforce. While acknowledging the concerns about AI technology replacing workers, Dr. Sin believes that more talents will be needed even with technological advancements. He compared the AI revolution to the digital era ushered in by computers, in which the demand for talents actually increased.

Dr. Sin raised the hot issue that businesses are increasingly concerned about: data privacy and tightened regulations. These trends have made people more cautious about adopting new technologies. In addition, he said, companies are finding it difficult to secure innovation funding due to the sluggish economy. This has put pressure on them to demonstrate solid returns on investment in innovations that are highly relevant to people’s needs.

“The world has changed significantly due to innovation and sustainability [issues], and we need to adapt to it,” said Ms. Loretta Fong (PACC 1993), President of Hong Kong Institute of Certified Public Accountants.

Ms. Fong highlighted the significant impacts of innovations, such as the Metaverse and blockchain, on accounting and auditing professionals, urging them to consider how to navigate these emerging challenges. She mentioned a new principle called “double materiality,” which requires companies to disclose information that not only affects their financial value but also encompasses their environmental and social impacts. This increased scope of responsibility has called for talents with different skill sets.

“We need every type of talent today in our sector, including IT professionals and environmentalists,” she said.

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Ms. Susanna Wong (IBBA 1992), a seasoned retail industry executive and the former CEO of Yata Limited, shared her opinion on innovation in retail industry.

Growing Awareness of Sustainability

Ms. Susanna Wong (IBBA 1992), a seasoned retail industry executive and the former CEO of Yata Limited, said innovation is not a new concept in the labour-intensive retail industry. Over the years, new technologies were adopted to reduce reliance on manpower and enhance consumer insights. However, she noted that the term “sustainability” had gained significant traction in the retail industry in recent years.

Ms. Wong acknowledged that some may criticise retailers for promoting unnecessary consumption and wasteful spending. Yet, retailers are increasingly aware of the importance of sustainability, and are making a concerted effort to contribute in their own way.

“One of the challenges faced by senior management in this industry is ensuring that the staff understands the importance of sustainability,” she said.

As more and more people have realised the importance of a low-carbon economy, Environmental, Social, and Governance (ESG) investment is becoming increasingly popular. Mr. Frank Tsui, Managing Director and Head of ESG Investment of Value Partners Group, shared his observations in this field.

“There is a high level of advancement in terms of sophistications in all aspects of ESG in the last few years,” he said, adding that advanced AI technology and algorithms have been applied to assess a company’s ESG data.

When it comes to the selection criteria for ESG companies, Mr. Tsui explained that there is a standardised list to evaluate a company’s performance in ESG. However, he emphasised that engaging with companies is still the most valuable approach to measuring performance. Direct engagement allows investors to validate whether a company’s actions genuinely align with the information they disclose.

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Mr. Frank Tsui, Managing Director and Head of ESG Investment of Value Partners Group, shared his observations in sustainability.

In terms of sustainability and ESG development in Hong Kong, Mr. Tsui noted that the city is still in its initial stage, but there would be significant growth in the future “because we are starting from scratch.”

Mr. Tsui observed a substantial increase in the quality of talents compared with previous years. He highlighted how much more specific job candidates are when addressing ESG topics at interviews. They would engage in comprehensive discussions of biodiversity and materiality impacts in financial analysis, rather than just touching on environmental topics in a vague way.

At the same time, Mr. Tsui said, sustainability practices within the asset management field have advanced significantly. Both asset owners and managers now prioritise detailed ESG criteria in their investments.

The Irreplaceability of Human Judgement

The impact of AI on talent acquisition and the overall job market is a question that business leaders must consider. In the next part of the panel discussion, Prof. Chan invited speakers to share their ideas about how AI technology affects their business and how talents can better prepare for the future business world.

“I am pretty sure that many individuals ought to be concerned about the future,” says Ms. Fong. She cited a recent study stating that AI could replace 95 percent of accountants. Undoubtedly, new technology introduced in the accounting and auditing process could improve efficiency and free people from tedious work such as vouching. “But, after all, AI cannot replace judgement,” she said. “I still believe that this is the most valuable [quality of] auditors.”

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Ms. Loretta Fong (PACC 1993), President of Hong Kong Institute of Certified Public Accountants, emphasised the importance of human judgement.

While many business graduates are contemplating the idea of acquiring programming or coding skills to alleviate their anxiety in a highly digitalised world, Dr. Sin suggested that it is more important for business students to focus on understanding what new technologies can actually do rather than making speculations based on media coverage.

“You need to combine [innovative technologies with] your business knowledge. [It’s important to] understand the limitations of such innovations,” said Dr. Sin. “[Only] then can you create value.”

Continuing on the subject of innovation, Ms. Wong offered a fresh perspective, suggesting that innovation should not be limited to technological advancements. “Don’t look at innovation as technology innovation only; innovation [can be] any ideas or improvements in your process to make things better,” she said.

The widespread use of AI technology, the urgency of addressing climate challenges, and the importance of sustainability are rapidly transforming the business landscape. Business talents must navigate these changes, invest in the right areas, and adapt to ever-evolving circumstances to grow professionally and contribute to a more sustainable future of our planet.

A new study reveals that U.S. households spend more on products from firms that prioritise corporate workplace equality, especially after major social events

Which would you choose: a bag produced by a firm known for its equal treatment of all staff or a bag produced by a company currently embroiled in a discrimination scandal? Conscious consumers, who prioritise ethical, social, and environmentally friendly products when making purchasing decisions, would likely choose the former.

A report indicates that 79 percent of respondents believe sustainability is either “somewhat important” or “very important” when making purchasing decisions. Additionally, 68 percent express a willingness to pay more for environmentally sustainable and socially responsible products.

Our research delves deeper than merely looking at diversity and equality at the executive level. It gauges workplace equality practices for the broader workforce.

Prof. Cen Ling

Given the rise of conscious consumers in recent years, companies should look beyond product quality and consider ESG (Environmental, Social, and Governance) or CSR (Corporate Social Responsibility) factors. While previous research has shown that strong ESG or CSR practices can decrease a firm’s risk exposure, the direct cash flow implications of such practices are still unclear.

Researchers from The Chinese University of Hong Kong (CUHK) recently aimed to understand how the purchasing decisions of conscious consumers who value ESG and CSR can directly impact a company’s cash flow.

The study, The Rise of Conscious Consumers: The Impact of Corporate Workplace Equality on Household Spending, was conducted by Cen Ling, Associate Professor of Finance, and Wu Jing, Associate Professor of Decisions, Operations, and Technology, both at CUHK Business School. They were joined by Prof. Han Yanru from Stevens Institute of Technology, and Liu Chang, a PhD candidate from City University of Hong Kong.

The market harshly punishes discrepancies between a firm’s declared commitment to and actual practices of workplace equality.

Prof. Wu Jing

“There’s a significant uptrend in ESG investment. Do investors like firms with good ESG practices purely based on their preferences? Or, a company’s ESG strategy truly benefit investors in generating higher returns? If so, does ESG contribute to higher returns by affecting the risk component or the cash-flow component, or both?” asks Prof. Cen. He expressed interest in exploring potential long-term economic incentives for companies to adopt ESG strategies.

Existing studies offer varied insights on the influence of ESG strategy on corporate operating performance. This research hones in on corporate workplace equality to gauge its effect on consumers’ buying habits. “This approach demystifies how specific ESG strategies can impact a company’s bottom line. Cash flow is a direct barometer of a company’s financial health,” notes Prof. Wu.

Measures to Evaluate Workplace Equality

To address these inquiries, the researchers developed a measure of corporate workplace equality, known as the EEO Score. This metric is based on the textual analysis of Equal Employment Opportunity statements found in millions of U.S. online job listings.

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The research is based on the textual analysis of Equal Employment Opportunity statements found in millions of U.S. online job listings.

“Our EEO Score delves deeper than merely looking at diversity and equality at the executive level. It gauges workplace equality practices for the broader workforce,” Prof. Cen states, emphasising the public’s greater concern for the rights of everyday employees over board members.

Prof. Wu adds, “Our EEO Score zeroes in on workplace equality for the average worker, filling a gap left by prior studies that centered on upper-tier corporate roles.”

The researchers highlight that their algorithm assigns higher EEO Scores to companies that make detailed, genuine, and enthusiastic EEO pledges in their job listings. While skeptics might dismiss online job listings as mere corporate rhetoric, the researchers have undertaken multiple validation steps to alleviate such concerns.

They underscored the EEO Score’s accuracy by demonstrating its foresight in predicting future discrimination-related litigation and headlines. They also pointed out the inherent costs that discourage companies with low equality standings from merely parroting those with higher commitments.

“The market harshly punishes discrepancies between a firm’s declared commitment to and actual practices of workplace equality,” Prof. Wu observes, emphasising the gravity of making an EEO commitment.

Consumers Favour Companies that Champion Equality

The next phase involved correlating household buying decisions with the EEO Scores of product manufacturers. They tapped into Nielsen Consumer Panel data that capture consumer behaviour of individual household.

“Instead of crafting a simulated consumer behaviour test in laboratories, we turned to genuine data, revealing the authentic spending habits of Americans,” Prof. Cen explains.

green-consumption
Given the rise of conscious consumers in recent years, companies should look beyond product quality and consider ESG (Environmental, Social, and Governance) or CSR (Corporate Social Responsibility) factors.

Findings were consistent with their hypothesis: U.S. households tend to spend more on products from companies that score high on workplace equality. However, Professor Cen highlights the presence of potential confounding factors in the positive correlation between household purchase decisions and EEO Scores, such as product quality. In other words, consumers might choose products from companies with high EEO scores solely because firms with better workplace equality practices also offer better product quality.

He adds, “To mitigate the endogeneity in this positive correlation between corporate workplace equality and household consumption, we looked at whether minority consumers displayed a heightened sensitivity in their spending patterns toward producers that championed workplace equality.”

As hypothesised, the pro-equality spending trend was more pronounced among racial or gender minority consumers.

Prof. Wu posits, “If product attributes unrelated to workplace equality were driving the correlation between spending and EEO Scores, it’d be challenging to explain the heightened sensitivity exhibited by minority consumers.”

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To further solidify their findings, the researchers employed two methods based on exogenous social events. First, they observed a spending boost on products from California-based firms post the 2018 enactment of the California Gender Board Diversity Law. Next, they noticed that the linkage between household expenditure and a producer’s EEO Score generally strengthened post-societal events that heightened equality awareness, like the #MeToo movement in 2017 and the Black Lives Matter movement in 2020.

In summary, the research underscores the tangible cash flow benefits of corporate workplace equality. Prof. Cen admits that the current buying surge, led by racial and gender minority consumers, doesn’t ensure a direct short-term boost in spending as a result of improved workplace equality. However, he believes that as consumer consciousness around equality becomes more widespread, firms will invariably see the financial advantages of ESG strategy adoption.

New study finds “green consumerism” is alive and well in China, with consumers willing to pay more for sustainable food

The 17 Sustainable Development Goals (SDG), which form the United Nations’ Post-2015 Development Agenda, are designed to provide a blueprint for achieving global peace and prosperity by 2030. Central to the agenda is the second SDG, which aims to “end hunger, achieve food security and improved nutrition, and promote sustainable agriculture.”

Meeting such policy objectives is critical to the prospects of many developing countries, as well as emerging economic powerhouses such as China, but they also pose a formidable challenge. Global food production is predicted to more than double by 2050, to meet growing demand that comes mainly from developing countries, as the world’s population, which reached eight billion in 2022, expands by around 0.8 percent per year.

The government should work together with other agencies to boost consumers’ trust in sustainable food by ensuring that the information provided is scientifically-based, accurate, comprehensive and communicated effectively.

Prof. Francisco Cisternas

Not only does the speed of population growth make the goal of food security hard to achieve, but demand for carbon-intensive meat products in developing countries tends to increase as they become richer. This trend, which is accelerating in China, following decades of rapid economic growth, can result in significant environmental damage, thereby frustrating the goal of making agriculture more sustainable.

A Growing Demand of Animal Protein

As populations switch to a Western-style diet, there is also a growing demand from consumers for beef and dairy products instead of other forms of animal protein. However, previous research shows that cattle farming results in eight times more greenhouse gas emissions per 100g of protein than the production of chicken or fish.

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Previous research found that cattle farming results in higher greenhouse gas emissions than the production of chicken or fish.

So how can food production be made more environmentally sustainable and resilient, while also feeding more people more effectively? A novel approach to cracking this conundrum that has emerged over recent years is focused on changing consumption patterns away from carbon-intensive foods such as meat and dairy products and towards sustainable foodstuffs. But can consumers actually be motivated to change their behaviour?

A timely new study from the Chinese University of Hong Kong (CUHK) has addressed this question by investigating the factors that motivate consumers in China to purchase food which is produced in a way that protects the environment, conserves natural resources such as air, energy and water, and uses less energy.

Entitled The future of sustainable food production in China, the study was conducted by Francisco Cisternas, Assistant Professor in the Department of Marketing at CUHK Business School; in partnership with five other CUHK academics. They are Prof. Lam Hon Ming and Dr. Carolina Andrea Contador Sariego of School of Life Sciences; Prof. Shelly Lap-Ah Tse, Dr. Shuyuan Yang and Dr. Zhiguang Liu of the Jockey Club School of Public Health and Primary Care; Scholars from other universities in China, Canada and the UK also took part.

Attitudes and Social Norms Affect Consumer’s Choice

The researchers theorised that consumers’ willingness to purchase environmentally friendly food is determined by their intentions, which in turn are affected by their attitude towards such purchasing behaviour; the social norms to which they are exposed; the degree of perceived control over their ability to make such purchases; and their perceptions of the food’s quality.

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The study finds that “green consumerism” is alive and well in China.

To test out the theory, they conducted a face-to-face survey of 2,422 Chinese consumers in rural and urban districts across five provinces, spanning northern and southern China, who formed a representative sample of the whole population. The five cities involved – Beijing, Nanchang, Xi’an, Taiyuan, and Shenyang – were chosen to reflect different income levels across China.

Respondents’ behavioural attitudes were measured in terms of their degree of concern about deforestation, drying lakes and rivers, and other damage caused by the use of land and water resources for agricultural production; while social norms were assessed by examining the extent to which participants were influenced to buy sustainable food by pressure from government bodies, the media, experts, international agencies, and social media commentators.

Perceived behavioural control was measured in terms of the cost and convenience of making purchases and participants’ views on certification systems and purchase conditions. The perceived quality of sustainable food was assessed by examining their views on the ingredients, nutritional values and health benefits of the food, plus their degree of trust in certification schemes.  Certification agencies involved in the study included international agencies, the Chinese central government, and local universities and scientific institutions.

Consumers Prioritise Environment in Food Purchases

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The results confirm that Chinese consumers are inclined to purchase sustainable food.

“The results confirm that Chinese consumers are inclined to purchase sustainable food,” says Prof. Cisternas. “Among the four factors, behavioural attitude contributed most to people’s willingness to buy sustainable food.

“These consumers are highly concerned about the impact of their food consumption on the environment, rather than simply considering personal benefits such as food safety. They limit their demand for non-sustainable food and replace their needs with sustainable alternatives.”

Prof. Cisternas says this willingness to spend more for sustainable food may be a form of the sort of “green consumerism” that prompts people to buy fair trade products, which cost more without necessarily offering better quality, yet still provide consumer satisfaction.

The second biggest impact on people’s willingness to purchase sustainable food was from social norms, with government promotions, and information in the media and on social media from experts, academics and commentators all influencing their readiness to pay more for environmentally friendly food, the study found.

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Perceived quality also played a part, with nutritional values, and health and nutritional benefits having more impact than the simple ingredients of the food, while lower levels of perceived behavioural control – partly measured by the distance between a participant’s home and markets stocking sustainable food – had the expected negative impact.

Enhancing Food Certifications Builds Trust in Sustainable Consumption

“The result showed that greater difficulty in accessing sustainable food reduced participants’ willingness to purchase such food,” says Prof. Cisternas. “This indicates that making it more convenient to purchase sustainable food would boost consumers’ intention to buy these items.”

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Consumers” willingness to buy sustainable food is affected by the type of its certification scheme.

The study also found that participants’ willingness to buy sustainable food was affected by the type of certification scheme it was covered by, with consumers placing most trust in certification by the Chinese central government. However, compared to consumers in other countries, Chinese consumers had a lower level of trust in food certification schemes overall.

Prof. Cisternas says the findings, which can be generalised to the whole population of China – and similar countries and regions – due to the representative nature of the survey, have implications for food policy.

“Information disseminated through the media and social media by government bodies, experts, international agencies, and commentators is more likely to influence consumers, when the organisations concerned are considered trustworthy,” he says.

“The government should work together with other agencies to boost consumers’ trust in sustainable food by ensuring that the information provided is scientifically-based, accurate, comprehensive and communicated effectively. Further improvements to certification schemes and better regulation and compliance monitoring may also help to build trust.”

CUHK scholar shares insights on U.S. interest rate outlook and how to forecast it through a structural framework

Following a series of 10 consecutive hikes, the U.S. Federal Reserve voted to pause its aggressive campaign of interest rate increases in mid-June. The Federal Open Market Committee (FOMC) decided to maintain its benchmark lending rate at a range of 5.0 to 5.25 percent. However, the rate-setting committee also hinted at the possibility of further monetary tightening before the end of the year.

Given that the United States is the world’s largest economy and the U.S. dollar is the world’s primary reserve currency, fluctuations in the U.S. interest rate have immediate effects on global markets. Acting as the central bank of the nation, the Federal Reserve’s primary objective is to maintain a stable U.S. economy. When the economy booms, issues such as inflation and asset bubbles can arise and threaten economic stability. To cool down an overheated economy, the Fed has traditionally stepped in and raised interest rates. When interest rates are raised, the costs of borrowing money (e.g., mortgage, car loans, and credit cards) increase, and consumers tend to pull back on spending. This can reduce the supply of money in circulation, which is a way to lower inflation.

The most difficult but rewarding strategy to forecast the U.S. interest rate is to ‘do your own economic analysis’, which would help people ‘beat the market’ and gain more significant returns.

Dr. Andrew Yuen

New-York-U.S.-economy
Acting as the central bank of the nation, the Federal Reserve’s primary objective is to maintain a stable U.S. economy.

As the U.S. interest rate directly affects people’s spending habits and investment returns, it would be helpful to forecast whether the U.S. government will increase or decrease it in the coming month. An educated forecast can help consumers find clues and make wiser investment decisions.

Andrew Yuen, Senior Lecturer at the Department of Decision Sciences and Managerial Economics,  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 “U.S. Interest Rate Outlook 2023” which took place in May 2023 .

Utilising Public Information Effectively

According to Dr. Yuen, people with varying degrees of economic knowledge can use different methods to forecast the U.S. interest rate. “The easiest and most effective way for those who don’t have any knowledge about economics is to look at the financial market data and follow the predictions of investment analysts,” he said. To obtain the latest probabilities of the U.S. interest rates, he recommended using the CME FedWatch Tool.

Andrew-Yuen-cuhk
During an EMBA master class, Dr. Yuen shared his insights regarding the outlook of U.S. interests.

However, rather than just obtaining information passively from the market, people can pursue a more advanced strategy. Dr. Yuen proposed analysing information from the FOMC. The FOMC is the branch of the Federal Reserve System that determines the U.S. interest rate. By analysing the information on the FOMC website, such as their meeting dates, after-meeting statements and projection materials, people can gain insights into the future trends of the U.S. interest rate.

Dr. Yuen illustrated how people can extract key information by comparing different statements from the committee. He highlighted a sentence in the March statement: “The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy.” He explained that this sentence indicated a further increase of the interest rate in FOMC’s May meeting. This was confirmed when the committee members met in May. Noticeably, the same sentence was deleted in the May statement, which suggested that the FOMC would not increase the interest rate in the upcoming meeting. As he anticipated, the Fed voted to maintain the interest rate in June, validating the initial inference.

Besides information from the FOMC website, people should also pay attention to what the FOMC members say in news reports. “The views of the voting members are quite important, especially [those of] Jerome Powell, the Chair of the Federal Reserve,” Dr. Yuen said.

Understanding the Causes of Interest Rate Fluctuations

U.S.-Feceral-Reserve
The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve System that determines the U.S. interest rate.

In addition to the two strategies mentioned above, Dr. Yuen noted that the most difficult but rewarding strategy to forecast the U.S. interest rate is to “do your own economic analysis”, which would help people “beat the market” and gain more significant returns.

Before attempting to make a forecast, however, one must first understand the primary objectives of the FOMC — maximum employment and stable prices. Therefore, Dr. Yuen said, individuals should examine the labour market and inflation trend to forecast the interest rate. “If the unemployment rate is very high, the interest rate will be reduced, and if the inflation rate is very high, the interest rate will be increased,” he explained.

food-price-inflation
As an abstract concept, inflation can be reflected in commodity prices.

While the FOMC’s decision-making process is theoretically straightforward, conducting one’s own forecast can be quite challenging. “When you forecast the interest rate, you need to forecast the inflation rate and unemployment rate in the future, just like the Fed would,” said Dr. Yuen. He further explained that interest rate decisions are forward-looking because any monetary policy takes time to become effective.

Dr. Yuen then discussed some indicators that individuals can use to analyse inflation trends. As an abstract concept, inflation can be reflected in commodity prices. He noted that housing, food and services are three major factors influencing inflation. More specifically, if the latest rental cost is trending down in the coming year, inflation is likely to also decrease. As such, the Fed would not increase the interest rate hastily. Likewise, decreasing food prices is also a sign of lowering inflation. Other indicators of U.S. inflation include the U.S. Producer Price Index (PPI) and China’s inflation figures. In general, interest rates will likely decrease if inflation rates decrease, Dr. Yuen summarised.

“Besides commodity prices, the U.S. labour market trends also affect the interest rate,” he said, adding that people should pay attention to U.S. salaries. If salaries decrease, people can expect lower inflation and lower interest rates.

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In the masterclass, Dr. Yuen shared his latest forecast of the U.S. interest rate for the end of 2023. After his sharing, he emphasised the importance of adjusting the figure based on the latest developments in the market. “The most important thing here isn’t for me to tell you my conclusion, but to show you how to conduct your own analysis.”

Dr. Yuen also encouraged attendees to put theory into practice. “Practice makes perfect. Try to apply what you have learned in this class and see if those methods are effective,” he advised.

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