Columbia Business School Research

Loss aversion can occur in riskless and risky choices. We present novel evidence on both in a non-student sample (660 randomly selected customers of a car manufacturer). We measure loss aversion in riskless choice in endowment effect experiments within and between subjects and find similar levels of average loss aversion in both. The subjects of the within study also participate in a simple lottery choice task which arguably measures loss aversion in risky choices. We find substantial heterogeneity in both measures of loss aversion.

We propose a new valuation method for private equity investments. First, we construct a cash-flow replicating portfolio for the private investment, using cash-flows on various listed equity and fixed income instruments. The second step values the replicating portfolio using a flexible asset pricing model that accurately prices the systematic risk in listed equity and fixed income instruments of different horizons.

We extract aggregate supply and aggregate demand shocks for the US economy from macroeconomic data on inflation, real GDP growth, core inflation and the unemployment gap. We first use unconditional non-Gaussian features in the data to achieve identification of these structural shocks while imposing minimal economic assumptions. We find that recessions in the 1970s and 1980s are better characterized as driven by supply shocks while later recessions were driven primarily by demand shocks. The Great Recession exhibited large negative shocks to both demand and supply.

This paper studies lockdown policy in a dynamic economy without government commitment. Lockdown imposes a cap on labor supply, which improves health prospects at the cost of economic output and consumption. A government would like to commit to the extent of future lockdowns in order to guarantee an economic outlook that supports efficient levels of investment into intermediate inputs. However, such a commitment is not credible, since investments are sunk at the time when the government chooses a lockdown. As a result, lockdown under lack of commitment deviates from the optimal policy.

Turning around distressed operations is an alternative response to underperformance — as contrasted with using transactions such as divestitures or resource redeployment to deal with troublesome assets during corporate renewal. Taking the perspective of private-equity owners whose interests are primarily financial, we explain how their approach to turnarounds of troubled companies may differ from that of managers within publicly traded firms who may envision the realization of longer-term sources of operating synergy among their firms' lines of business.

An historical review of managers' corporate renewal decisions reveals an evolving pattern away from using operating turnarounds in favor of making changes in corporate scope via transactions. One explanation for this progression away from operations is that financial valuation considerations supplant other inputs to managers' strategic logics — a reflection of the rising influence of financial institutions as activist owners.

Choice architecture tools, commonly known as nudges, powerfully impact decisions and can improve welfare. Yet it is unclear who is most impacted by nudges. If nudge effects are moderated by socioeconomic status (SES), these differential effects could increase or decrease disparities across consumers. Using field data and several preregistered studies, the authors demonstrate that consumers with lower SES, domain knowledge, and numerical ability are impacted more by a wide variety of nudges.

The Covid-19 pandemic crisis is ongoing, and it its wake has brought tremendous loss of life and economic loss, disruption and uncertainty. It has simultaneously brought to the surface important challenges about global healthcare systems, political systems and institutions and their response to the multi-faceted crisis, the connectedness and dependencies of modern economies through global supply chains, and issues of inequity, as manifested in segments of the population that have been most affected in terms of health and economic outcomes through the crisis.

In modern equity markets, participants have a choice of many exchanges at which to trade. Exchanges typically operate as electronic limit order books under a "price-time" priority rule and, in turn, can be modeled as multi-class FIFO queueing systems. A market with multiple exchanges can be thought of as a decentralized, parallel queueing system. Heterogeneous traders that submit limit orders select the exchange, i.e., the queue, in which to place their orders by trading off financial considerations against anticipated delays until their orders may fill.

Using text-mining, the authors develop version 1.0 of the Relevance to Marketing (R2M) Index, a dynamic index that measures the topical and timely relevance of academic marketing articles to marketing practice. The index assesses topical relevance drawing on a dictionary of marketing terms derived from 50,000 marketing articles published in practitioner outlets from 1982 to 2019. Timely relevance is based on the prevalence of academic marketing topics in practitioner publications at a given time.

People often discount future rewards, embracing smaller rewards that are delivered sooner rather than waiting for larger rewards delivered later. Previous behavioral research has demonstrated that people are more patient when options are presented as decisions to accelerate rather than delay consumption. This behavioral effect is well-established in the literature, but the underlying neural mechanisms have not been identified. We examined the neural correlates of delay and acceleration framing in intertemporal choice.

We formulate a dynamic no-arbitrage asset pricing model for equities and corporate bonds, featuring time variation in both risk aversion and economic uncertainty. The joint dynamics among cash flows, macroeconomic fundamentals and risk aversion accommodate both heteroskedasticity and non-Gaussianity. The model delivers measures of risk aversion and uncertainty at the daily frequency. We verify that equity variance risk premiums are very informative about risk aversion, whereas credit spreads and corporate bond volatility are highly correlated with economic uncertainty.

The major cities of the world have attracted a flurry of out-of-town (OOT) home buyers. Such capital inflows affect housing affordability, the spatial distribution of residents, construction, labor income, wealth, and ultimately welfare. We develop a spatial equilibrium model of a city with substantial heterogeneity among residents. We calibrate the model to the New York and Vancouver metro areas. The observed increase in OOT purchases is associated with 1.1% (5.0%) higher house prices and a 0.1% (0.34%) welfare loss in New York (Vancouver).

We propose a model of sovereign debt in which countries vary in their level of financial development, defined as the extent to which they can issue debt denominated in domestic currency in international capital markets. We show that low levels of financial development generate the "debt intolerance" phenomenon that plagues emerging markets: it reduces overall debt capacity, increases credit spreads, and limits the country's ability to smooth consumption.

This paper studies systemic risk in the interbank market. We first establish that in the German interbank lending market, a few large banks intermediate funding flows between many smaller periphery banks. We then develop a network model in which banks trade off the costs and benefits of link formation to explain these patterns. The model is structurally estimated using banks' preferences as revealed by the observed network structure before the 2008 financial crisis.

How much capital should financial intermediaries hold? We propose a general equilibrium model with a financial sector that makes risky long-term loans to firms, funded by deposits from savers. Government guarantees create a role for bank capital regulation. The model captures the sharp and persistent drop in macro-economic aggregates and credit provision as well as the sharp change in credit spreads observed during the Great Recession.

Does the pattern of social connections between individuals matter for macroeconomic outcomes? If so, where do differences in these patterns come from and how large are their effects? Using network analysis tools, we explore how different social network structures affect technology diffusion and thereby a country’s rate of growth. The correlation between high-diffusion networks and income is strongly positive. But when we use a model to isolate the effect of a change in social networks on growth, the effect can be positive, negative, or zero.

This article describes randomized field experiments implemented on two online labor market platforms examining the effect of employer charitable giving on a source of human capital that is becoming increasingly important to firms: the gig worker. It provides support that a message about charitable giving increases gig workers' willingness to complete extra work, and that pro-socially oriented gig workers are most responsive.

We estimated the effects of information avoidance and information seeking among parents of children diagnosed with ASD on age of diagnosis. An online survey was completed by 1,815 parents of children with ASD. Children of parents who self-reported that they had preferred "not to know," reported diagnoses around 3 months later than other children.

We study how small and medium enterprise (SME) lenders react to information about their competitors’ contracting decisions. To isolate this learning from lenders’ common reactions to unobserved shocks to fundamentals, we exploit the staggered entry of lenders into an information-sharing platform. Upon entering, lenders adjust their contract terms toward what others offer. This reaction is mediated by the distribution of market shares: lenders with higher shares or that operate in concentrated markets react less.

Global firms finance themselves through foreign subsidiaries, often shell companies in tax havens, which obscures their true economic location in official statistics. We associate the universe of traded securities issued by firms in tax havens with their issuer’s ultimate parent and restate bilateral investment positions to better reflect the financial linkages connecting countries around the world. Bilateral portfolio investment from developed countries to firms in large emerging markets is dramatically larger than previously thought.

We investigate risk and return in the major corporate bond markets of the developed world. We find that average returns increase with maturity and ratings class (where ratings go from high to low) and that this pattern is fit well by a global CAPM model, where the market consists of equity, sovereign and corporate bonds. Nonetheless, we strongly reject "asset class integration," finding a model which separates the market portfolio into its three components to fit much more of the corporate bond return variation.

The authors propose that purchasing luxury can be a unique means to engage in sustainable consumption because high-end products are particularly durable. Six studies examine the sustainability of high-end products, investigate consumer decision making when considering high-end versus ordinary goods, and identify effective marketing strategies to emphasize product durability, an important and valued dimension of sustainable consumption.

Shared Appreciation Mortgages (SAMs) feature mortgage payments that adjust with house prices. These mortgage contracts are designed to stave off home owner default by providing payment relief in the wake of a large house price shock. SAMs have been hailed as an innovative solution that could prevent the next foreclosure crisis, act as a work-out tool during a crisis, and alleviate fiscal pressure during a downturn. They have inspired Fintech companies to offer home equity contracts. However, the home owner's gains are the mortgage lender's losses.

We examine the statistical term structure model of cochrane and Piazzesi (2005) and its affine counterpart, developed in cochrane and Piazzesi (2008) in several out-of-sample analyzes. The model’s one-factor forecasting structure characterizes the term structures of additional currencies in samples ending in 2003. In post-2003 data one-factor structures again characterize each currency’s term structure, but we reject equality of the coefficients across the two samples.

In this paper, we examine a novel two-stage mechanism for selling government securities, wherein the dealers underwrite in the first stage the sale of securities, which are auctioned in stage 2 via either a discriminatory auction (DA) or a uniform price auction (UPA).

According to the Lucas-Stokey result, a government can structure its debt maturity to guarantee commitment to optimal fiscal policy by future governments. In this paper, we overturn this conclusion, showing that it does not generally hold in the same model and under the same definition of time-consistency as in Lucas-Stokey. Our argument rests on the existence of an overlooked commitment problem that cannot be remedied with debt maturity: a government in the future will not necessarily tax above the peak of the Laffer curve, even if it is ex-ante optimal to do so.

We investigate underlying sources of the US entrepreneurial ecosystem's advantage compared to other innovative economies by assessing the benefits Israeli startups derive from migrating to the US. Addressing positive sorting into migration, we show that migrants raise larger funding amounts and are more likely to have a US trademark and be acquired than non-migrants. Migrants also achieve a higher acquisition value. However, their patent output is not larger.

The extent to which men and women sort into different jobs and organizations—namely, gender differences in supply-side labor market processes—is a key determinant of workplace gender composition. This study draws on theories of congruence to uncover a unique organization-level driver of gender differences in job seekers’ behavior. We first argue and show that congruence between leadership gender and organizational claims is a key mechanism that drives job seekers’ interest.

This paper examines the impact of mandatory reporting and auditing of firms' financial statements on industry-wide resource allocation. Using threshold-induced variation in the share of mandated firms in a given industry, I document that reporting mandates facilitate ownership dispersion in capital markets and spur competition in product markets. I, however, do not find that reporting mandates unambiguously improve the efficiency of industry-wide resource allocation. With respect to auditing mandates, I find only that they impose a fixed cost on firms, deterring smaller entrants.

We consider the pricing problem faced by a revenue maximizing platform matching price-sensitive customers to flexible supply units within a geographic area. This can be interpreted as the problem faced in the short-term by a ride-hailing platform. We propose a two-dimensional framework in which a platform selects prices for different locations, and drivers respond by choosing where to relocate in equilibrium based on prices, travel costs and driver congestion levels.

Advice to the Biden administration as it seeks to account for mounting losses from storms, wildfires and other climate impacts.

One of the first executive orders US President Joe Biden signed in January began a process to revise the social cost of carbon (SCC). This metric is used in cost–benefit analyses to inform climate policy. It puts a monetary value on the harms of climate change, by tallying all future damages incurred globally from the emission of one tonne of carbon dioxide now.

[…]

Using high-frequency transaction-level income, spending, balances, and credit limits data from an online financial service, we show that many consumers fail to stick to their self-set debt paydown plans and argue that this behavior is best explained by a model of present bias. Theoretically, we show that (i) a present-biased agent's sensitivity of consumption spending to paycheck receipt reflects his or her short-run impatience and that (ii) this sensitivity varies with available resources only for agents who are aware (sophisticated) rather than unaware (naive) of their future impatience.

The use of order flow information by financial firms has come to the forefront of the regulatory debate. A central question is: Should a dealer who acquires information by taking client orders be allowed to use or share that information? We explore how information sharing affects dealers, clients and issuer revenues in U.S. Treasury auctions. Because one cannot observe alternative information regimes, we build a model, calibrate it to auction results data, and use it to quantify counter-factuals. The model's key force is that sharing information reduces uncertainty about future value.

Despite a recent surge in corporate activism, with firm leaders communicating about social-political issues unrelated to their core businesses, we know little about its strategic implications. This paper examines the effect of an employer communicating a stance about a social-political issue on employee motivation, using a two-phase, pre-registered field experiment in an online labor market platform. Results demonstrate an asymmetric treatment effect of taking a stance depending on whether the employee agrees or disagrees with that stance.

Many service systems are staffed by workers who work in shifts. In this work, we study the dynamic assignment of servers to different areas of a service system at the beginning of discrete time-intervals, i.e., shifts. The ability to reassign servers at discrete intervals, rather than continuously, introduces a partial flexibility that provides an opportunity for reducing the expected waiting time of customers.

Patients whose transfer to the Intensive Care Unit (ICU) is unplanned are prone to higher mortality rates and longer length-of-stay than those who were admitted directly to the ICU. Recent advances in machine learning to predict patient deterioration have introduced the possibility of proactive transfer from the ward to the ICU. In this work, we study the problem of finding robust patient transfer policies which account for uncertainty in statistical estimates due to data limitations when optimizing to improve overall patient care.

Deciding between the use of market orders and limit orders is an important question in practical optimal trading problems. A key ingredient in making this decision is understanding the uncertainty of the execution of a limit order, that is, the fill probability or the probability that an order will be executed within a certain time horizon. Equivalently, one can estimate the distribution of the time-to-fill. We propose a data-driven approach based on a recurrent neural network to estimate the distribution of time-to-fill for a limit order conditional on the current market conditions.

The author proposes a topic model tailored to the study of creative documents (e.g., academic papers, movie scripts), which extends Poisson factorization in two ways. First, the creativity literature emphasizes the importance of novelty in creative industries. Accordingly, this article introduces a set of residual topics that represent the portion of each document that is not explained by a combination of common topics. Second, creative documents are typically accompanied by summaries (e.g., abstracts, synopses).

This Better Marketing for a Better World special issue of the Journal of Marketing is motivated by the gap that remains between what is studied in our field and what is possible. We believe that we still know too little about marketing’s role in improving -- or harming -- our world.

Marketing is the functional area primarily responsible for driving the organic growth of a firm. In the age of digital marketing and big data, marketers are inundated with increasingly rich data from an ever-expanding array of sources. Such data may help marketers generate insights about customers and competitors. One fundamental question remains: How can marketers wrestle massive flows of existing and nascent data resources into coherent, effective growth strategies?

We examine how choice bracketing affects expected value maximization in experience-based choice. Experience-based choices are a series of individual choices made sequentially, for which feedback follows each choice, and are thus naturally bracketed narrowly. Previous research broadly bracketed multiple experience-based choices for decision makers by aggregating the choices (such that each choice pertained to multiple individual choices) or by reducing feedback frequency.

Many research papers in household finance utilize annual snapshots of household wealth from administrative data, such as tax registries, to calculate "imputed consumption." However, trading costs, unobserved intra-year trades, or unobserved security characteristics may cause measurement error. We document how such errors vary across groups of individuals by income, portfolio characteristics, and wealth and how they are correlated with individual income and balance sheets, asset prices, and the business cycle using transaction-level retail brokerage account data.

We develop a flexible content-based search model that links the content preferences of search engine users to query search volume and click-through rates, while allowing content preferences to vary systematically based on the context of a search. Content preferences are defined over latent topics that describe the content of search queries and search result descriptions.