Decision Making & Negotiations

This article considers the problem of testing curvature (e.g., linearity, concavity, convexity) in a multivariate nonparametric regression model. A measure of curvature, called the simplex statistic, that does not require bandwidth choice and is easy to compute, is introduced. A global test of curvature based on the simplex statistic is also introduced. Localized versions of the test, which require smoothing parameters, are shown to be consistent against more general alternatives than the global test.

This paper conducts a probabilistic analysis of an important class of heuristics for multi-item capacitated lot sizing problems.

In this paper, we examine people's appraisals of unusual objects and their intuitions about whether others will like those objects. Prior work suggests uniqueness motives (e.g., Need for Uniqueness) affect appraisals, but the effect of these motives on projection of appraisals to others is unclear. Contrary to some prior work, we argue that uniqueness motives do not govern projection of appraisals but rather that individual differences in perceived similarity to a target group do.

In this paper, we analyze the optimal policy for a risk averse agent who wants to sell a large block of shares of a risky security in the presence of price impact and transactions costs. Our framework reduces to the standard Merton portfolio problem in the absence of any market frictions. Optimal liquidation results in revenue distributions which are substantially different from those generated by a naive strategy. The main tradeoff involves choosing between revenue distributions which have high means versus those which have low variances.

Despite the influx of measures which can be customized to the demands of each business unit (e.g., customer satisfaction surveys and quality indices), many firms have been dogged in their reliance on standardized measures (e.g., conventional financial metrics) in performance evaluation. In this paper, we consider one justification: though customized measures may more accurately target the goals of a particular unit, standardized measures may offer more meaningful opportunities for relative performance evaluation.

In the Public Company Accounting Oversight Board's Sep 2004 Standing Advisory Group Meeting, one of the sessions was devoted to verifiability concerns regarding fair values. At that meeting, some participants expressed the opinion that accounting estimates pose broader problems beyond computing fair values, and investors need to be educated about the role of estimates in financial statements. This paper suggests an extension to the existing accounting model to allow users to better understand the role of estimates/forecasts in financial statements.

We study a model of imperfect competition and limited production capacity, in which a choice of low product quality enables firms to increase total production. We find that in the presence of limited capacity, such reduced quality often results in increased social welfare. We also explore the relation between the extent of competition and the choice of quality. We find that, in some cases, reduced competition leads to increased production, decreased average quality, increases total welfare, and makes consumers better off.