Decision Making & Negotiations

The regulation of bank capital as a means of smoothing the credit cycle is a central element of forthcoming macro-prudential regimes internationally. For such regulation to be effective in controlling the aggregate supply of credit it must be the case that: (i) changes in capital requirements affect loan supply by regulated banks, and (ii) unregulated substitute sources of credit are unable to offset changes in credit supply by affected banks. This paper examines micro evidence—lacking to date—on both questions, using a unique data set.

Marketing variables that are included in consumer discrete choice models are often endogenous. Extant treatments using likelihood-based estimators impose parametric distributional assumptions, such as normality, on the source of endogeneity. These assumptions are restrictive because misspecified distributions have an impact on parameter estimates and associated elasticities. The normality assumption for endogeneity can be inconsistent with some marginal cost specifications given a price-setting process, although they are consistent with other specifications.

What kinds of credit substitution, if any, occur when changes to banks' minimum capital requirements induce them to change their willingness to supply credit? The question is of first-order importance given the emergence of "macro-prudential" policy regimes in the wake of the global financial crisis, under which regulatory tools — in particular, minimum capital ratio requirements for banks — will be employed to control the supply of bank credit as part of the effort to improve the resilience of the financial system.

Reference dependent preferences have been applied in both risky and certainty settings, although little attention has been directed at the relationship between the reference points as well as the loss aversion functions for these models. This paper addresses this relationship for the special case where reference dependence corresponds to habit formation. Multiperiod Expected Utility habit or persistence models have spawned important contributions in asset pricing, life cycle consumption, business cycle analysis and monetary models.

Many factors introduce the prospect of changes for the demand environment that a firm faces, with the specifics of such changes not necessarily known in advance. If and when realized, such changes affect the delicate balance between demand and supply and thus should be anticipated to the extent possible. We study the dynamic pricing problem of a retailer facing the prospect of a change in the demand function during a finite selling season with no inventory replenishment opportunity.

Do people know when they are seen as pressing too hard, yielding too readily, or having the right touch? And does awareness matter? We examined these questions in four studies. Study 1 used dyadic negotiations to reveal a modest link between targets' self-views and counterparts' views of targets' assertiveness, showing that those seen as under- and over-assertive were likely to see themselves as appropriately assertive.

We propose a simple approach to dynamic multi-period portfolio choice with quadratic transaction costs. The approach is tractable in settings with a large number of securities, realistic return dynamics with multiple risk factors, many predictor variables, and stochastic volatility. We obtain a closed-form solution for a trading rule that is optimal if the problem is restricted to a broad class of strategies we define as "linearity generating strategies" (LGS).

This study examines the relation between securitization and loan performance using a comprehensive dataset from a major national mortgage lender. Loans remaining on the bank's balance sheet ex post incurred higher delinquency rates than sold loans, contrasting the negative relation between screening efforts and ex ante probability of loan sale explored by prior studies. Moreover, the performance gap between sold and retained loans was wider among the subsample of loans that were perceived as easier to resell.