New research helps explain why competitors share knowledge

Tristan L. Botelho entered the investment banking industry just in time to watch the financial world unravel in the crisis of 2007–08. The experience underlined for him the importance of perception, networks, and other social factors in the performance of the economy and cemented his interest in researching such issues.

“Social factors play an important role in markets and organizations, and they must be taken into account because they affect outcomes systematically,” said Botelho, a fifth-year PhD student in the Economic Sociology program at the MIT Sloan School of Management. “For me, being in the industry and very early in my career, I found the financial crisis really highlighted this fact, and impacted the way I started to think.”

After his stint on Wall Street, Botelho went on to spend a couple of years in corporate finance to gain business experience. However, his interest in academic research remained strong, and he enrolled at MIT Sloan in August 2011.

“My research is driven by a desire to explain those things we observe in the real world that don’t seem to make sense at first glance,” Botelho said. “I strive to contribute to existing research and also connect my findings to issues that are important in the economy.”

For example, Botelho recently finished a paper that investigated why buy-side investment professionals (such as hedge fund analysts and managers) at competing firms openly share investment recommendations with one another. Since knowledge-sharing among such competitors is counterintuitive, Botelho wanted to understand the conditions under which it might prove beneficial.

Zeroing in on one online recommendation platform, Botelho examined data on what stocks elicited brief recommendations (under 40 words) versus long ones (averaging more than 1,400 words). What he discovered was that higher levels of market uncertainty about a stock led to higher odds that an individual would share detailed knowledge about it.

“Value is created or realized because others also see this value,” Botelho said. When there are high levels of market uncertainty about a stock’s worth, Botelho found managers were more willing to share their knowledge — effectively persuading others that an opportunity is present and that they should commit resources to it.

“If you see a stock as undervalued and there is a lot of market uncertainty, maybe others will naturally realize it and buy in, but maybe it’ll take months or longer for this to happen, so you need a way to catalyze the process,” he said. An example of this is sharing knowledge about this opportunity with other investment professionals.

This finding is important, Botelho said, because it reveals the surprising benefits of an activity that many firms restrict automatically — sharing information with competitors. “There are conditions where, if more firms realized the benefits of knowledge sharing, they could consider it a possible strategy for increasing performance as opposed to simply a cost or risk,” he said.

Botelho’s paper on the topic, “Here’s an Opportunity: Knowledge Sharing among Competitors as a Response to Market Uncertainty,” won the 2015 Best Student Paper award from the Organization and Management Theory Division of the Academy of Management.

Botelho’s research also encompasses how social factors affect evaluation processes. For example, in one recent paper, “Pursuing Quality: How Uncertainty Magnifies Double Standards in a Multistage Evaluation Process,” written with Mabel Abraham, PhD ’15, Botelho explores the ways in which gender bias manifests in online evaluations of stock recommendations. The paper has been conditionally accepted for publication by Administrative Science Quarterly.

“Success within organizations and markets is not just about perfecting the widget; there are all these social dynamics that greatly impact individual and firm outcomes,” said Botelho, who plans to pursue an academic career after earning his doctorate, which he expects in May 2017. “It’s important to understand and leverage the social world around you.”

For more information, visit Botelho’s website.