Decision Making & Negotiations

This paper examines optimal sampling and pricing of information goods for firms that generate revenues from both sales and advertising. We develop a model where the demand for paid information goods is influenced by the sample portion that the firm offers for free. Taking into account the consumers’ initial valuation and experienced quality of the free version, we characterize the firm’s optimal sampling and pricing decisions. We find that the effect of advertising revenues on optimal sample portion and price depends on expected and experienced quality.

The fields of statistics and econometrics have developed powerful methods for testing the validity (specification) of a model based on its fit to underlying data. Unlike statisticians, managers are typically more interested in the performance of a decision rather than the statistical validity of the underlying model. We propose a framework and a statistical test that incorporates decision performance into a measure of statistical validity. Under general conditions on the objective function, asymptotic behavior of our test admits a sharp and simple characterization.

The Pampas of Argentina have shown some of the most consistently increasing trends in precipitation during the 20th century. The rainfall increase has partly contributed to a significant expansion of agricultural area, particularly in climatically marginal regions of the Pampas. However, it is unclear if current agricultural production systems, which evolved partly in response to enhanced climate conditions, may remain viable if (as entirely possible) climate reverts to a drier epoch.

This chapter reviews multiproduct dynamic pricing models for a revenue maximizing monopolist firm. The baseline model studied in this article is of a seller that owns a fixed capacity of a resource that is consumed in the production or delivery of some type of product. The seller selects a dynamic pricing strategy for the offered product so as to maximize its total expected revenues over a finite time horizon.

We develop a two sector general equilibrium model with capital accumulation and convex adjustment costs. We use the model to study capital asset pricing and reallocation, as well as optimal consumption and investment decisions. With two sectors, the consumer balances diversification against the potential productivity and efficiency gains of investing more heavily in one sector. The general framework nests and extends standard equilibrium macro-asset pricing models.

The authors test methods, based on cognitively simple decision rules, that predict which products consumers select for their consideration sets. Drawing on qualitative research, the authors propose disjunctions-of-conjunctions (DOC) decision rules that generalize well-studied decision models, such as disjunctive, conjunctive, lexicographic, and subset conjunctive rules. They propose two machine-learning methods to estimate cognitively simple DOC rules. They observe consumers' consideration sets for global positioning systems for both calibration and validation data.

This paper documents frequent attempts by activist arbitrageurs to open-end discounted closed-end funds, particularly after the 1992 proxy reform which reduced the costs of communication among shareholders. Open-ending attempts have a substantial effect on discounts, reducing them, on average, to half of their original level. The size of the discount is a major determinant of whether a fund gets attacked. Other important factors include the costs of communication among shareholders and the governance structure of the targeted fund.

This article reviews shareholder activism by hedge funds. We first describe the nature and characteristics of hedge fund activism, including the objectives, tactics, and choices of target companies. We then analyze possible value creation brought about by activist hedge funds, both for shareholders in the target companies and for investors in the hedge funds. The evidence generally supports the view that hedge fund activism creates value for shareholders by effectively influencing the governance, capital structure decisions, and operating performance of target firms.