Business Schools

Sunny Skies for Weather Futures


A B-school study examines whether financial incentives can boost weather predictions. Plus: Advertiser karma; family demands vs. career

It's raining dollar bills for the 60 business and meteorology students at the Pennsylvania State University, who participated in an experiment to see if futures markets can be used to accurately forecast the weather.

Economists at the university's Mary Jean and Frank P. Smeal College of Business and professionals at the College of Earth & Mineral Sciences operated these week-long markets with funding from the National Science Foundation. Each participant had the opportunity to buy and sell contracts representing a temperature range. If the temperature fell within that range, the seller was obligated to pay the buyer $1. Participants could use any information they could find to decide which contracts to buy and sell.

The experiment found that students were about as accurate as professional weather services, including AccuWeather, the BBC, CNN, and the National Weather Service. Proving money is quite an incentive, the temperatures predicted by the market were only off by 6.6% on average.

Researchers wanted to give students hands-on experiences with future markets and sought to see if markets truly can predict uncertain events accurately. The weather, says Anthony Kwasnica, associate professor of business economics at Penn State, offers 20-20 hindsight to futures markets because you eventually know the exact high and low temperature. That allows you to gauge your accuracy, whereas you'll never know exactly how much a company such as Microsoft (MSFT) is really worth even by studying its stock price, he adds.

"As an economist, I don't care that much about weather. I want to learn about markets," says Kwasnica. "I want to know what makes markets tick." Kwasnica says he and his colleagues will launch a market in July to predict the North Atlantic Oscillation, a phenomenon associated with winter fluctuations in temperature, rainfall, and storminess in Europe. The group plans to run many other markets related to weather if it can find the funding, he adds. If Kwasnica has his way, Penn State will be flooded with opportunities to test futures markets.

Culture Flub

Many people in India believe in karma, or the idea that making good choices now will account for positive outcomes in the future in this life and other lives. The truly faithful say deception, even self-deception, gets in the way of positive results. Understanding these beliefs can help marketers better connect to Indian consumers.

Praveen Kopalle, a native of India and associate professor of business administration at Dartmouth's Tuck School of Business, and his colleagues set out to discover the impact of cultural variables—in this case a belief in karma—on customer expectations and satisfaction. The team surveyed people in India who believe in karma about how they would react to hypothetical advertisements and shopping experiences related to automobile tires.

The researchers already knew that skeptical Americans have lower expectations of the performance of products that are advertised to be high quality. Indians, on the other hand, expect advertisers to refrain from deception and make good choices with karma in mind. Therefore, the survey showed that they had higher expectations of the product and would be disappointed if the goods did not live up to advertisers' promises. The academic paper on the study is in the editing process.

Practitioners can use these findings to improve customer satisfaction by better managing expectations. In other words, a company, when advertising, can inflate the positives of its goods or services in the U.S. and deflate them in India.

Marketers get the best lesson of all, says Kopalle: "Don't just transfer ad messages from one culture to another."

Family vs. Career

By now, everyone knows that work can spill into your personal life and threaten your family. But can family problems damage your career? A recent Canadian study published in Applied Psychology and out of the DeGroote School of Business at McMaster University in Hamilton, Ont., found that people with family demands feel they are given fewer career opportunities and have poorer relationships with managers.

Researchers surveyed 381 public-sector employees, mostly senior- and mid-level managers and professionals, about their family and work lives. The sample was split evenly between men and women, which showed that family burdens that infringe on career rest with some men nowadays, too, says Rick Hackett, professor and Canada Research chair at DeGroote. The results weren't reported by the sex of the respondents.

Companies can learn from the results. The study also showed that employees experiencing the greatest pull from home tend to have fewer mental and physical resources to devote to their paid jobs, which results in declining work performance.

Still, wanting to rise to the top does not have to mean ignoring responsibilities on the home front. "The key message is that workers ought to not sacrifice family and home for career," says Hackett. "But they should bring planning and discipline to the process [at home]." He suggests that people use the same framework they would to create a financial portfolio to organize their home life. And managers have a responsibility, says Hackett, to create a culture where people can take advantage of their benefits, such as paternity leave, without guilt or repercussions.

Di Meglio is a reporter for BusinessWeek Online in Fort Lee, N.J.

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