Antoinette Schoar

Antoinette Schoar grew up in Germany. The chance to join the PhD program at the University of Chicago brought her to the U.S., where she has lived ever since. Her work examines people’s decision making in mortgage markets, how people take financial advice and how they save for retirement. With Ideas42, Schoar co-founded a non-profit that uses behavioral science to address intractable social problems.

Antoinette Schoar’s most influential paper to date examines the effect of individual managers on corporate behavior and performance. Together with her co-author Marianne Bertrand , she looked at a dataset that contained about 600 U.S. firms and more than 500 individual managers. The two economists were able to track the same top managers across different firms over time and found that managers have different styles that directly affect the financial decisions and organizational strategy of a firm.

Their paper opened up a debate within the economics profession, which had previously more or less ignored the impact the CEO has on a company’s performance. Still, Schoar was careful not to overinterpret the results of her initial paper. “From that work per se, it was tougher to say that there was a correlation between management styles and performance,” she says.

Her more recent research looks at how the market responds to CEO-level management styles. “We look at CEOs that were having their first job in a recession versus in a boom time. You see that those managers have different styles, and the stock market reacts differently to them. So it’s not too far of a stretch to think that there’s a correlation between style and performance.”

Managing with style

Schoar says that though the United States may still pride itself on its entrepreneurial ecosystem, there is also reason for concern. “There’s this dichotomy between rural and city areas. In the cities, where you have lots of people engaged in new technologies, you see entrepreneurship thriving. But the places where it’s tougher to have access, we also see entrepreneurship suffering a lot.”

Another challenge, according to Schoar, is high market concentration, with only a few U.S. tech giants that fiercely compete in a market that newcomers can hardly enter. “The trend away from IPOs, firms being acquired by larger firms rings particularly worrisome to me as a German,” Schoar says. “An IPO market doesn’t really exist that much in Germany, so the chances to monetize an innovation is being sold to Siemens, Siemens and Siemens. It means that the bargaining power rests with the large firms and not with the startups. I don’t think the U.S. is all the way there yet — luckily not, but in the long run, I would be worried about this trend.”

Schoar explains that data is a primary reason why small but growing businesses may be tempted to join one of the big players instead of remaining standalone. “It’s much easier as a startup to join a big firm that already has this amazing infrastructure. The way we’ve set up the ownership of data drives towards more concentration. The fact that big tech firms get to own your data means that they have a very natural advantage in using big data.”

This can only change if the ownership of data changes. “Technology very soon will allow us to flip the ownership of data, meaning that you can own your data,” explains Schoar. “If Google wants to use it, they will have to pay. In a world like this, any young startup who wants to do a competing product can access the data at the same price point.” The benefit: a more even playing field for firms that want to enter the digital economy.

Part of Antoinette Schoar’s more recent work looks at technological changes in the financial services industry. Tech developments have made many things more efficient, convenient and cheaper — but there’s also a downside. “The fact that we can use big data to make better credit scoring decisions has brought down the cost of consumer finance,” explains Schoar. “But financially less sophisticated people can be hurt due to the fact that financial institutions know much more about your weaknesses.”

Looking at the U.S. credit card market, Schoar found that firms may deliberately target less sophisticated consumers and treat them differently from those that are more financially literate. “What we find is that people that are less educated are receiving offers that are much more backloaded in its fee structure. We can even classify the complexity of language. When information is provided to less educated, it uses more complicated language.”

Schoar points out that innovation in the financial services industry is of huge value. Still, the market needs to be fair. That’s why fast, smart regulation is needed. “Consumer financial regulation has to be nimble and dynamic. What might have been a great policy five years ago, might be outdated today.”

The economist emphasizes that it’s each individual’s responsibility to watch out for their financial future, and that many people need to engage with their whole financial health much more than they currently are. “But it’s also true that financial decisions are complicated. We don’t expect people to study medicine to be able to trust their doctor. That’s inefficient. Smart regulation can help people make better choices.”

Fintech and consumer finance

“This was a middle-class crisis,” Schoar says. “Pre 2008, they had a zero default rate, and then they went up to 6 to 10 percent. The banks were unprepared because the mantra had always been middle class people, upper middle-class people don’t default on their mortgages.”

Understanding the origins of the American housing crisis of 2007 has been a challenge for economists and policy makers. Schoar and her co-researchers revealed that the tale of a “subprime mortgage crisis” is not based on what actually happened. As Schoar explains, it was the middle- and upper-middle class that defaulted in unprecedented large numbers which predominantly caused the crash.

Schoar points out how a better understanding of the false narrative could have led to the introduction of better policies. Instead, post-2008 regulation made it very difficult for the poorer to access mortgages, at a time when prices were particularly low.

“Regulation post crisis has done a very good job in making the financial system more stable, but it hasn’t made the housing market more sane,” says Schoar. “We kept poorer people out of that market, and I think this is a big policy mistake. You don’t want a situation where financial policy is exactly countercyclical.”

What caused the U.S. housing crisis?

Together with economist Sendhil Mullainathan and psychologist Eldar Shafir, Schoar founded Ideas, an organization that uses insights from behavioural economics and psychology to solve real world problems. Schoar points out how often, governments don’t see the behavioral problems that are holding back the effectiveness of their programs. Solutions can be as simple as presenting the information in a digestible way or providing easy access to information.

Schoar says that a good example is SNAP, the Supplemental Nutrition Assistance Program in the U.S. “Some of the poorest people who are eligible for food stamps don’t have access to them,” says Schoar. “They are the ones that are struggling to survive, they have several jobs, family…These forms are often so difficult to fill out that just the fact that they would have to spend an afternoon filling out the forms makes it impossible.”

Understanding these behavioral biases and that it’s not laziness but the design of the actual forms that holds people back from filling them out helps improve misdirected programs. In the example of SNAP, Ideas42 helped to streamline forms to make them simpler and less time consuming.

Schoar says that her research in finance aims to understand how the economy can help people escape poverty. She explains that poverty alleviation is about creating an environment where economic innovation can help people improve their lives. “Access to finance is a big force in this. I’ve been very motivated by thinking about how we can make financial markets and financial products more accessible and make them work better for people. If anything, that’s becoming an even more important question in the 21st century. We have to use the fantastic job we have for the benefit of society.”