Decision Making & Negotiations

We propose and estimate a structural model of daily stock market activity to test competing theories of trading volume. The model features informed rational speculators and uninformed agents who trade either to hedge endowment shocks or to speculate on perceived information. To identify the model parameters, we exploit enormous empirical variation in trading volume, market liquidity, and return volatility associated with regular and extended-hours markets as well as news arrival. We find that the model matches market activity well when we allow for overconfidence.

As firms increasingly seek out consumers' ideas in various domains, they will encounter individuals with different levels of domain-specific knowledge. While both low- and high-knowledge consumers may be willing to share their ideas benevolently, the performance of the former is likely to be hindered by their lack of relevant knowledge in the problem domain. It is also well established that, despite their abundant knowledge, high-knowledge consumers may not perform in accordance with their full potential (due to factors such as shallow processing and inattention).

The current research examines the extent to which visual perception is distorted by one's experience of power. Specifically, does power distort impressions of another person's physical size? Two experiments found that participants induced to feel powerful through episodic primes (Study 1) and legitimate leadership role manipulations (Study 2) systematically underestimated the size of a target, and participants induced to feel powerless systematically overestimated the size of the target. These results emerged whether the target person was in a photograph or face-to-face.

As the debate over banking reform continues, the 800-pound gorilla in the room is the anemic market value of America's banks. The market-to-book value ratio of U.S. banks — an indicator of market perceptions of their future cash flow-generating potential — remains in the tank. This ratio averaged between 1.8 and 2.9 from 2000 until mid-2007, but then plunged to an average of between 0.9 and 1.3.

A series of laboratory and field experiments test the effect of considering options sequentially (one at a time) versus simultaneously (all at once) on an individual's satisfaction with and commitment to their chosen option. The results converge to reveal a detrimental effect of choosing from sequentially presented options. Unlike simultaneously presented options, the sequential presentation of options evokes hope for a better option to become available in the future and regret from potentially passing one up.

This paper studies the "confidential holdings" of institutional investors, especially hedge funds, where the quarter-end equity holdings are disclosed with a delay through amendments to Form 13F and are usually excluded from the standard databases. Funds managing large, risky portfolios with nonconventional strategies seek confidentiality more frequently. Stocks in these holdings are disproportionately associated with information-sensitive events or share characteristics indicating greater information asymmetry.

This paper studies the "confidential holdings" of institutional investors, especially hedge funds, where the quarter-end equity holdings are disclosed with a delay through amendments to Form 13F and are usually excluded from the standard databases. Funds managing large risky portfolios with nonconventional strategies seek confidentiality more frequently. Stocks in these holdings are disproportionately associated with information-sensitive events or share characteristics indicating greater information asymmetry.

What is the role of leaders in large organizations? We propose a model in which a leader helps to overcome a misalignment of followers' incentives that inhibits coordination while adapting the organization to a changing environment. Good leadership requires vision and special personality traits such as conviction or resoluteness to enhance the credibility of mission statements and to effectively rally agents around them.