![]() I recently discussed in this blog how status and prestige can do good things for a person, an organization, or a product. This effect has seen much study because it is a social fact that is very influential, and it seems arbitrary and illogical. Identical items are valued differently by supposedly smart people. We have lots of evidence that status gives benefits, including to those who are in some way connected to others with high status. To be seen with the elite is to gain some elite-ness, and casual observation of how people crowd the most prominent people in receptions will tell you they know that. Can status also cause harm? A new article in Administrative Science Quarterly by Brian Reschke, Pierre Azoulay, and Toby Stuart found an example of this. They looked at the very prestigious appointment to the Howard Hughes Medical Institute (HHMI), which marks appointees and their research as especially accomplished, so much so that it can be used to predict future Nobel Prizes. Receiving this appointment is clearly a good thing. But what happens to those who are doing similar research but were not appointed to the HHMI? Is the similar research a connection that lets them gain some status? Or does it mark them as losers in a race for who is most important and should receive attention? Even worse, does someone else’s HHMI appointment determine what the final answer to a research question is, so that others conclude that this question can now be ignored? Of course the blog title gave it away: prizes harm the status of similar others. Once a prize is announced, their work is seen as less and less important—their influence erodes. This erosion increases over time, and it is greater for younger (so less established) similar work. This is important to learn about on its own, because it is so different from the positive “status contagion” that we are used to finding. But there is also an exception to this finding, and it is just as interesting. Circling back to the logic that being near the elite can give some elite-ness, a prize might be able to bring recognition to similar others, and through that give them status. Resche, Azoulay, and Stuart found that can be true, but only if the similar others have little recognition to begin with. Once their work is established enough to be seen as important, the prize has negative effects. So, prizes can give status to the less established, lifting them up. More often, what prizes do is to settle who among the established are most important, bringing one up and pushing the rest down. Anyone working in an area in which prizes are given—and pretty much any occupation or industry that involves design has prizes—will appreciate this research, because it confirms a basic intuition. You should hope to get the prize and fear that the prize is given to someone like yourself. Reschke, Brian P., Pierre Azoulay, and Toby E. Stuart. 2017. "Status Spillovers: The Effect of Status-conferring Prizes on the Allocation of Attention." Administrative Science Quarterly: forthcoming. ![]() We have a general idea that status and prestige can do things – good things – to a person or organization. We are all familiar with how the prestigious classes of wine demand higher prices, even for a given quality level; there is evidence on this in research on French and California wines. Status effects are also well known from many other contexts, and a more-consequential example is financial markets, in which the most prestigious banks gain price and distribution advantages over all others. A new paper by Anne Bowers and Matteo Prato in Administrative Science Quarterly gives interesting new details on the effects of status. They look at equity analysts, who seek to help investors in the stock market by issuing reports on firms and estimating their future earnings. This is difficult work, both in getting the estimates right and in gaining the confidence of investors, but some analysts are so highly regarded that their estimates can move the price of stock they report on. They have market power even though they just act as observers and forecasters. But how can an investor determine what analyst to pay attention to? Conveniently, there is the magazine Institutional Investor, which caters to the large (and very powerful) institutional investors such as mutual funds and pension funds, as well as ordinary investors. The magazine has an annual All-Star award, given mostly for accurate estimates but also for other qualities such as high service to customers (again, institutional investors). This award is prestigious, but it is also a sign of quality. If the market could consider the quality and prestige aspects of the award separately, someone who was nearly good enough for the award should gain nearly as much power as someone actually getting it. You are probably guessing that this is not what happens. And you are right. Bowers and Prato had a very clever way of finding this out. The award is given across many categories of equities, and these categories often change through addition, deletion, combination, and splitting. This is neat because it means that an analyst could become an All-Star, or lose an All-Star award designation from a prior year, simply because the categories changed. Focusing only on these changes in awards, they found that the difference between having an award and not having one was a great deal of market power. Gaining an award meant that an analyst moved stock prices much more; losing one meant that an analyst moved prices much less. The second of these effects should give you pause. Financial markets are supposed to be smart and to be able to predict the average outcome of many future events. But the loss of market power when an analyst loses the All-Star distinction because of a category change suggests that the markets are forgetting what they knew. The quality of an analyst doesn’t suddenly change, so if the market power changes, we know that the market has forgotten the quality. This is not good news for those of us who let institutional investors such as mutual funds or pension funds hold our pension investments. Bowers, Anne, and Matteo Prato. 2017. "The Structural Origins of Unearned Status: How Arbitrary Changes in Categories Affect Status Position and Market Impact." Administrative Science Quarterly: forthcoming. |
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