Prize highlights young economist’s steady, bold trajectory

UC Berkeley economist Ulrike Malmendier could have chosen any number of career paths.  After all, she speaks six languages, is fascinated with Latin and Greek, and loves physics and math. While working on a Ph.D. in law, another focus of her eclectic interests, she took a modern-economics course and that changed everything.

Malmendier set off to explore the world of economics, which she has tackled enthusiastically with approaches and discoveries that often deviate from mainstream thinking and theories. She has turned her attention to such things as corporate finance, contract theory, the links between human decision-making and finance, and the ancient history of the firm.

The change in academic pursuits seems to be paying off. Malmendier is garnering a steadily growing number of awards, including the recently announced American Finance Association’s 2013 Fischer Black Prize, a prestigious recognition of her creativity and originality in research.

Young economist Ulrike Malmendier’s curiosity about why people make questionable financial decisions underlines much of her research. (Genevieve Shiffrar photo)

A few highlights of her research include uncovering the dangers of CEO overconfidence, the lingering risk-averse investment habits of Depression-era babies (which can shine light on the effects of the Great Recession), irrational overbidding in mergers and acquisitions, why people pay for but don’t use gym memberships and the real reasons for charitable giving.

Curiosity about why people make financial choices that don’t seem to be in their best interest, and how behavioral biases affect finances from the individual to the institution, drives much of her research and could lead to better financial understanding, modeling, education and action, says Malmendier.

“I want to help people understand better that they are making flawed decisions, how to be aware of their biases and how to avoid them,” she says.

The Fischer Black Prize is considered by many to be on par with the older John Bates Clark Medal (around since 1947), which is awarded annually by the American Economic Association to the most promising American economist under the age of 40. The Clark Medal is often seen as a precursor to the Nobel Prize for economics.

Altogether, UC Berkeley’s economics department has five Nobelists and five winners of the Clark Medal. Professor Dan McFadden won the Clark Medal in 1975 and the Nobel Prize in 2000. Malmendier is Berkeley’s first winner of the Fischer Black Prize and the award’s first female recipient.

A professor of economics and of finance at UC Berkeley, with joint appointments in the economics department and with the Haas School of Business Finance Group, Malmendier has received the “Rising Star in Finance” award at the Fordham/NYU Rising Stars Conference last year, and was named one of the Young Elite and one of the “Top 40 Researchers under 40” by Capital magazine in both 2011 and 2010. Malmendier also was awarded an Alfred P. Sloan Research Fellowship in 2010.

According to Google Scholar, Malmendier’s work had more than 4,700 scholarly citations by other researchers. And IDEAS, the largest bibliographic database dedicated to economics, says those numbers place her in the top 5 percent of the world’s most cited economists.

Malmendier, who exudes confidence without attitude, says she is honored by the recognition and hopes it helps generate support for, and interest in, going beyond crunching numbers and statistics to understand the behavioral drivers of economic and financial behavior.

She says getting acceptance for her research hasn’t always been easy, because much of it challenges “ingrained ideas” about economics and finance through the examination of the psychological underpinnings and historic records of decision-making by both business managers and consumers.

“Early on it was hard to get some of my work that questioned what others have done published,” she says, recalling some disparaging remarks by referees of some journals where she tried to publish.

Lending moral support, she says, was George Akerlof, a Berkeley emeritus professor of economics who won the 2001 Nobel Prize for research that looked at the sales of defective cars, or “lemons,” through the asymmetrical exchange of information between buyers and sellers. Akerlof told her he met with resistance and skepticism early in his career too, even for the research that led to his Nobel Prize.

“He was the one who really tried to encourage me,” Malmendier says. “He said, ‘Just go on, don’t give up!'”

Interestingly, she adds, business executives have welcomed her work in the hope of better understanding investor behavior and their own management decisions. “I thought the corporate world would be skeptical, but the opposite is the case,” says Malmendier, who will teach a class on financial decision-making in firms during the spring semester.

Malmendier earned a Ph.D. and a master’s degree in business economics at Harvard University in 2002, and a Ph.D. in law at the University of Bonn in 2000. Malmendier earned an M.A. in economics and a B.A. equivalent in law at the University of Bonn in 1996. She received a B.A. in economics at the University of Bonn in 1995.

She joined the UC Berkeley faculty in 2006, after teaching at Stanford University. She has also spent time as a visiting scholar at Princeton University, the University of Chicago, the Max Planck Institute in Germany and Oxford University.

Malmendier is thriving at Berkeley, where she has helped to solidify the campus’s reputation as the leading place in the world for behavioral economics research, “Berkeley is really behavioral economics heaven,” she says.

She is married to fellow Berkeley economist Stefano DellaVigna. The two sometimes collaborate on research. They also are the parents of three young boys, Thomas (4), Lucas (2) and Alexander (9 months).

Economics department chair James Powell says Malmendier’s receipt of the Fischer Black prize is a testament to her growing stature as a world-class scholar in behavioral and financial economics.

“Ulrike is brilliant and has a great intellectual curiosity, with a diverse range of research interests,” Powell says. “She is amazingly productive – thanks to seemingly boundless energy and great organization – and she serves as a mentor for many of our undergraduate and graduate students.”

Berkeley-Haas Dean Richard Lyons calls Malmendier’s selection for the prize “a great honor for an outstanding scholar.”