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Esteemed Professors: Chicago Booth Moments (Essay)

Chicago Booth ProfessorsIf you want specific examples of what makes Booth faculty different from other school faculties, who are mostly academicians with limited tenure in high profile roles, cite the examples of Raghuram Rajan, Luigi Zingales, Richard Thaler and Nicholas Epley.

Raghuram Rajan
Rajan, a rock star professor from Booth, rose to fame by predicting the 2008 Financial meltdown with the paper
“Has Financial Development Made the World Riskier? “ in 2005.

At that time, the popular belief was that the Economy was going through a boom. According to Rajan’s paper, it is easy to grow the company in the short-term with higher risk, but incentivizing professionals to attain growth at any cost will lead to long-term losses. A better approach that Raghuram suggested was to set up risk-adjusted growth targets. The paper describes how short-term profit targets incentivize investment bankers to herd together with the competition and employ similar strategies. What it does is that the difference in investment returns would be in the 5-10% range across all products. Rajan argues that such behavior takes the focus away from investing based on fundamentals to investing based on herd mentality.

The worst consequence - the fund managers might be fired if losses are accrued in the long-term, but finding another opportunity for them is easy as long as they can argue that the competitors also gave similar results. In the landmark paper in 2005, Rajan reiterates that group thinking and proclivity towards cyclical boom and bust in the financial system would eventually lead to a recession that would wipe out the savings of the most prudent savers and pensioners. The prediction became true. He suggested that Central banks should remain cautious and manage the liquidity in the system.

One of his suggestions was to monitor the large banks that had the maximum impact on the Financial sector, even hedge funds, that might not have a direct impact on the economy. Traditional funds often mirror the strategies used by the sophisticated investor and lose money in the process. He also proposed penalties for excessive risk. The central bankers interpreted the suggestion as ‘more regulation’ and ignored Rajan’s advice. 

Raghuram Rajan became the 23rd Governor of the Reserve Bank of India on Sep 2013 and is on leave from the University where he served as the Distinguished Service Professor of Finance. Rajan, who is associated with Booth since 1991, is not seeking a second term as the RBI governor in 2016. He will return to Booth with a new perspective on navigating the complexities of the Indian bureaucratic system.

Download F1GMAT's Chicago Booth MBA Essay Guide to learn about three more professors in the prompt: Luigi Zingales, Richard Thaler, and Nicholas Epley.


Also Included in the Essay Guide

Download 2016-17 Chicago Booth MBA Essay Guide

Booth MBA Essay Guide

1. Demonstrates how to turn your story into an interesting narrative .
 
2. Offers Context and explains the 10 Chicago Booth Moments: New Venture Challenge, Travel & Experience International Culture, LEAD (Leadership Effectiveness and Development), Harper Center, Esteemed Professors, Global Social Impact Practicum, Booth Alumni, Booth MBA Entrepreneurs,  Distinguished Speaker Series and Student Groups. 

3. Summarizes the Student Groups and how it can add value to your post-MBA journey.

Download 2016-17 Chicago Booth MBA Essay Guide

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