The Literature Review: Dec. 18, 2023
The dark side of hiring for creativity, an untapped audience for self-improvement, and how retail investors spoil market efficiency.
Welcome to the inaugural Literature Review! These weekly compilations will keep you in the loop with the most important studies to come out of the field of business research, ranging across all business functions. This is meant to be “just the facts” with only minor editorialization, and all sources are in the footnotes. Thank you for reading — you’re the best.
MANAGEMENT & PEOPLE
how hiring for creativity can lead to hidden discrimination
what?
Trying to hire for creative and artistic roles is challenging. A common approach is to evaluate the creative merit of a candidate’s portfolio of past work,1 but this results in sub-par hiring decisions. By definition, creative works need to be novel in some aspect, which means that we don’t have a good reference by which to judge them. This makes evaluations of creative works fraught with uncertainty. The first issue with this uncertainty is that it quietly distorts our perceptions of creative products, biasing us against true creativity without even recognizing it as such.2 The second issue with this uncertainty is that it forces us to rely on personal characteristics of the candidate (like social status, gender, and cultural indicators) to guess at the creative value of their portfolio.
Faced with the need to decide under high uncertainty, [organizational] gatekeepers resort to publicly unpalatable and sometimes illegal criteria without acknowledging, or possibly even without being aware, that they do so.3
The fact that these personal features are embedded within the creative works lends them a sense of legitimacy, even though they are still protected characteristics. (Hence why the most cautious recruiters and hiring managers can still fall into this trap.) What we take as indicators of creative merit and quality are actually indicators that the creator’s cultural background overlaps either with our own or with our stereotype of creatively competent people.4
Employers show preference for applicants of high cultural status and who match them along culturally-based identity markers of similarity and difference.5
In the end, this signifies that most businesses attempting to hire for creativity are instead perpetuating inequities.
so what?
Businesses increasingly need creativity from all employees, not only those in “creative” roles. The vast majority of people believe that businesses that invest in creativity have greater financial success, as well as happier and more productive employees and a better customer experience, and a majority of consumers actively prioritize purchasing from companies with creative marketing and design.6 This effect is even more pronounced among younger consumers, so creativity will only become more important as Millennials and Generation Z increase their share of your customer base in the coming years.
Despite this, hiring practices haven’t evolved fast enough to keep up. For all creative positions — but especially for those where creativity is one of the foremost requirements — there is a systematic advantage for white men with upper- and upper-middle-class backgrounds.
[The majority] of job holders in the UK creative industries have class-privileged backgrounds and those with more modest backgrounds who make it in are paid less and are less likely to advance7. Men also dominate creative jobs: in the US, for instance, only 32% of musicians, 30% of television writers, and 25% of architects are women. Women are also less likely to reach the top of creative professions8 and are paid less9. Finally, creative jobs are disproportionately White. In the UK, for example, non-White employment in the creative industries is only eight percent, [substantially] lower than the overall non-White employment.10
While a few of these issues exist in other roles and industries, the adverse effect on disadvantaged groups is intensified by the hundreds of companies still hiring for creative roles in an uninformed way. Employers thus have a responsibility to improve their selection processes around creativity, for both themselves and all future candidates.
now what?
The most straightforward solution for many roles is a realistic job preview or a tryout. Let the candidates show themselves off. This not only allows people to demonstrate their creative competence in the most natural and relevant way, but it reveals whether they can put that creativity to use.
In situations where job previews are not an option, recruiters and hiring managers should build in systematic evaluations of the way that candidates think through creative problems. This means that after having candidates perform a creative task, they should be prompted to explain their thinking. Then, their responses can be inspected for patterns and processes of thought that are proven to correspond to creative efficacy, like receptivity to feedback and analogical reasoning (fluently making sense of new problems by drawing connections to what you already know)11.
When the candidates’ past work must be evaluated, evaluators can use objective rubrics of novelty (rather than of quality). As discussed, the perceived quality of a creative work depends heavily on the audience, since most of what we think is creative quality is actually our alignment with cultural cues present in the work. The overall novelty of a portfolio, on the other hand, more reliably predicts the creative merit of the candidate. Although it may seem reductive, construct a few quantitative measures by which the creative products of this role can be described. A candidate’s portfolio can then be judged on the newness and uniqueness of its works, rather than a faulty subjective quality metric.
MARKETING & SALES
why consumers love self-improvement
what?
Imagine that you hear whispers that most of your colleagues think you’re unfit for the promotion you just received. Or perhaps that you didn’t hit your performance targets for the second month in a row. Or even that you find out that your work friends have been sneaking off to lunch without you for a whole week. These are status threats. In a workplace environment, potential threats to an employee’s status are abundant.
One of the most common responses to such status threats is retail therapy; the reasons underlying this familiar buying behavior, however, differ from case to case. When consumers feel that their deficiencies are controllable12, they choose to consume products and services that directly address those deficiencies, like signing up for a relevant online certificate program or buying a relevant non-fiction book.
Recipients of status threats rarely feel so thoroughly in control of the situation, though. If given the opportunity, a significant number of these people will engage in a behavior called status pivoting, which is when they “pivot” from pursuing status in the threatened domain to pursue status in another domain.13 It is much easier to accept your own unexpectedly poor sales performance at work last month when you choose to focus on, for example, how much your cooking skills improved during the same period. In this situation, sales skill is the threatened domain and cooking skill is the alternative domain. Crucially, consumers readily buy self-improvement products and services in these alternative domains.14 As a result, there is evidence that self-improvement goods across all domains can find a surprisingly broad audience among, essentially, anyone with a job.
so what?
While it is obvious that some consumers want self-improvement products to tackle their perceived deficiencies, it is not as intuitive that consumers would also seek self-improvement products to improve in other areas. The implications of this could be huge; status threats are ubiquitous to all working adults and incredibly frequent, but are rarely capitalized on. This is in spite of the fact that almost any product encompassing self-help, personal growth, or continuous learning could align itself with this audience.
Better yet, the buyer motivation resulting from status threats sparks significant spending. Consumers will pay 50% more to maintain their status than to gain status,15 because effective presentation of self-improvement products taps into our general tendency to fear losses more intensely than we hope for gains.
It’s not just about the wonderful things that will happen if someone becomes a customer. It’s also about the terrible things that may happen to them if they fail to do so. Or, put differently, it’s about the painful situations they can successfully avoid if they do become your customer.16
This behavioral quirk is deemed loss aversion, and it is already being used successfully by marketers in industries like insurance, where the whole product is built around protecting against loss. The self-improvement sphere would be a fresh new application for this approach.
At this point, astute readers will surely argue that self-improvement is not the only solution to uncontrollable status threats, which is true. The most visible reaction is conspicuous consumption, or the buying of status-affirming or luxury goods specifically to show them off.17 If that’s not an option, almost all consumers eventually resort to hedonic consumption, or the buying of pleasure (food and beverage is the main outlet for this type of purchasing).
While “splurges” like these may be common (three in four consumers globally has splurged in the past month), they aren’t really satisfying. They are more about releasing emotional pressure than about receiving any utility. Matter of fact, conspicuous consumption can actively harm consumers, because it fosters rumination about the original status threat.18 But customers want to be able to justify the practicality of these purchases, and they will jump through mental hoops to convince themselves of it.19 So, why not give them what they actually need? Self-improvement consumption provides the same emotional benefits as conspicuous or hedonic consumption, and it offers genuine lasting utility that the other types of purchases do not. Any marketer in the self-improvement industry who can successfully convey this point will be able to reach a very fruitful, very underserved audience.
now what?
The easiest approach for businesses providing self-improvement products and services is to ensure that advertising materials are visible in places frequented by professionals. This may be an online platform like LinkedIn, an industry magazine or newsletter, or even something like public transit (depending on your location). Placing or advertising your product in venues where customers go for hedonic products could also work; when set side by side, many consumers will likely see self-improvement as the more justifiable purchase.
Messaging should emphasize how a product gives consumers control over themselves and their position or reputation. After all, remember that customers trying to improve themselves in one area are doing so because of a lack of control in another. Some crude example of slogans in this vein are choose your own destiny, or take your career into your own hands. A bonus to this genre of messaging is that consumers across all segments have been shown to be more willing to try a new product when it is framed as enhancing their control.20
Notably, not all self-improvement paradigms are equally appealing to control-seeking consumers. The products and services that address this group the best are those that demand a high degree of effort from the consumer post-purchase.21 People facing status threats don’t want to buy things that improve them; they want to buy things that allow them to improve themselves. As odd as it sounds, it may be necessary to undersell a product’s capabilities to emphasize the role that the customer plays in their own development.
FINANCE & ACCOUNTING
on retail investor hype and too much of a good thing
what?
The Reddit-fueled GameStop short squeeze in early 2021 proved what amateur individual investors (i.e. retail investors) could achieve with the benefit of the Internet. Since then, the activities and interests of retail investors have increasingly commanded the attention of established media. Despite this, it has been assumed that the potential impact of retail investors is limited to minor liquidity improvements without purposeful coordination.
Contrary to this assumption, there is evidence that a stock that receives too much attention from retail investors has a higher likelihood of a price crash in the near future than similar stocks.22 This is due to these stocks exhibiting a higher degree of information asymmetry.23 Here, information asymmetry refers to the difference, or asymmetry, between the reality of a company and the market’s knowledge of the company. Since the market’s knowledge of a company is captured in its stock price, severe information asymmetry leads to equally severe overpricing. When enough people finally realize the discrepancy, the stock’s price corrects downward… violently. This is a stock price crash.
Theoretically, the market price of a stock should change to reflect new public information about a company almost instantly. Retail investors make this an impossibility. To understand why, consider what constitutes a retail investor. By definition, they are not professionals;24 they are regular people with jobs and commitments. Consequently, retail investors have neither the resources nor the time to consistently research and maintain their investment portfolio. They may take weeks or months longer than active institutional investors to hear about and act on a piece on information.25 Delay of this kind creates and exacerbates information asymmetry,26 because people trading on old information can accidentally end up trading against more recent information.
so what?
Retail investors, as a group, are on the rise. For one, the Internet promotes stock market participation across the board by democratizing information.27 This is one of the first times in history where the average person could make informed decisions about their own investments without needing a degree in finance. Additionally, financial technology has been catering to retail investors for years. E-Trade opened the door, but Robinhood cemented them as a fixture of the financial landscape, especially during and in the wake of the COVID-19 pandemic. Six million Americans downloaded a brokerage app in January 2021 alone,28 which was over 2% of the entire adult population of the U.S. at the time. And as of mid-2021, a whopping 15% of all U.S. stock market investors had begun investing only within the past year.29 Growth rates like that are hard to ignore. Given that these trends are set to continue, it seems that retail investors are here to stay, so companies and financial professionals need to adapt.
now what?
While most retail investors are not uninformed or gullible, they do over-rely on social media for investment information.
The new segment of retail investors generally falls into two buckets. The first tends to be younger, first-time investors with limited discretionary income… The second bucket is comprised of savvier, more experienced investors with more money at their disposal. For both groups of investors, social media tends to play an extremely vital role in how they receive and process information, as well as how they make investment decisions.30
(Emphasis my own.) While retail investors cannot be expected to devote hours every day to keeping up with financial news, they should at the very least not wait until their social media feeds show the news to them. This is a major source of the information lag that causes information asymmetry. Plus, the algorithms that drive social media news worsen the asymmetry by inducing herding behavior. The real issue, however, is that when retail investors hear important news too late, they deprive themselves of the biggest gains and expose themselves to the biggest losses.
Retail investors today have access to more information than ever, but they’re largely ignoring it. Investopedia is a wonderful resource for financial and market literacy, and it will be able to answer most of the technical questions that retail investors might have. For day-to-day news, retail investors can simply turn to their brokerage app of choice; nearly all of them now aggregate relevant news articles about each stock, and display those articles in the same place as other stock information. Habitually reading the headlines for each stock in a portfolio takes less than 10 minutes daily. For those of you that are retail investors: try this out, and see the difference it makes. For everyone else, recommend information gathering habits like these to the retail investors in your life — for their benefit, and the market’s.
Adobe. (2016). State of create: 2016. Adobe.
See footnote 3.
Harhut, N. (2022). Using Behavioral Science in Marketing. Kogan Page. (p. 21)
Khodarahmi, B., Foroughnejad, H., Sharifi, M. J., & Talebi, A. (2016). The impact of information asymmetry on the future stock price crash risk of listed companies in the Tehran Stock Exchange. Journal of Asset Management and Financing, 4(3), 39-58.
See footnote 28.