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The Takeaways:
MIT Sloan Faculty Members Offer Their Perspectives (continued)

Sinan Aral on social influence... “People are more skeptical of negative social influence. They’re more likely to ‘correct’ a negative vote and give it a positive vote.” Aral warns, “These positive ratings also represent bias and inflation. The housing bubble was a spread of positivity, but when it burst, some people lost their savings.
...Stock bubbles represent a positive herding, and they can be dramatically bad in the wrong context.”
Online Groupthink: How others’ ratings affect your judgment,” MIT Technology Review, October 22, 2013

Jared CurhanJared Curhan

Jared Curhan on bargaining a better deal... “If you’re sweating, and your heart rate is up, it’s seen as a sign something is going wrong, that you’re too nervous, off-balance, flustered,” he said. “Whereas we’re showing that something could be very right.”
Work Up a Sweat, and Bargain Better,” The New York Times, November 9, 2013
Jared Curhan is the Sloan Distinguished Associate Professor of Organization Studies.

Heeding contagion—preventing another economic crisis

Kristin Forbes and Roberto Rigobon
MIT Sloan Executive Education Blog, November 19, 2013

The U.S. is unflinching in its optimism and ability to move forward after a crisis, such as the 2008 recession. And yet the drawback to this reflex is the ability to quickly forget what landed us in the situation to begin with. As our economy recovers, we potentially risk a growing complacency and inadequate financial oversight.

Just months ago, the country of Cyprus made global headlines as their banks’ ballooning assets grew far beyond what the country could support. Losing over 4.5 billion euros, the Cyprian banks tried to repair the damage by confiscating secure deposits, affecting the assets and the trust of investors throughout Europe and Russia and causing a ripple effect of investment withdrawals. The contagious effects of this crisis are a warning of how interconnected we are, and how one failed system could halt economic recovery elsewhere.

Contagion is Real

MIT Sloan professors and economic experts Kristin Forbes and Roberto Rigobon have proven in their collective work that learning how financial shock in one country permeates the economic stratosphere of another can ultimately teach global financial institutions to communicate and collaborate to prevent a future crisis.

“You cannot entirely prevent another crisis, but you can prevent a crisis from spiraling out of control by learning from our past failures,” says Forbes, “and by setting up a system to monitor economic stress while ensuring that countries are working together rather than defensively isolating.”

Kristin Forbes is the Jerome and Dorothy Lemelson Professor of Management and Professor of Global Economics and Management.

Roberto Rigobon is the Society of Sloan Fellows Professor of Management and Professor of Applied Economics.

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