Culture as common sense: Perceived consensus vs. personal beliefs as mechanisms of cultural influence
The authors propose that culture affects people through their perceptions of what is consensually believed. Whereas past research has examined whether cultural differences in social judgment are mediated by differences in individuals’ personal values and beliefs, this article investigates whether they are mediated by differences in individuals’ perceptions of the views of people around them.
Do Managers Value Stock Options and Restricted Stock Consistent with Economic Theory?
We investigate whether current mid-level and future entry-level managers subjectively value stock options and restricted stock consistent with economic theory. We also investigate whether managers' subjective valuations are sensitive to changes in key characteristics of these equity instruments. We believe our investigation is important for three reasons. First, in recent years firms have granted the vast majority of options to employees who are not senior-level executives.
Doing Good or Doing Well? Image Motivation and Monetary Incentives in Behaving Prosocially
This paper examines image motivation—the desire to be liked and well-regarded by others—as a driver in prosocial behavior (doing good), and asks whether extrinsic monetary incentives (doing well) have a detrimental effect on prosocial behavior due to crowding out of image motivation.
Dynamic pricing when customers strategically time their purchase: Asymptotic optimality of a two-price policy
We study the dynamic pricing problem of a monopolist firm in presence of strategic customers that differ in their valuations and risk preferences. We show that this problem can be formulated as a static mechanism design problem, which is more amenable to analysis. We highlight several structural properties of the optimal solution, and solve the problem for several special cases.
Efficient Take-Back Legislation
Product and waste take-back is becoming more regulated by countries to protect the environment. Such regulation puts an economic burden on firms, while creating fairness concerns and potentially even missing its primary target: environmental benefits. This research discusses the economic and environmental impacts of extended producer responsibility type of legislation and identifies efficiency conditions.
Essay: A New Proposal for Loan Modifications
We propose a new three-pronged plan to address the recent harmful flood of foreclosures. Our plan would address the major barriers that inhibit the ability of third-party servicers to modify mortgages the way portfolio lenders are now doing with greater success. The plan provides greater compensation for servicers to perform their duties, removes legal constraints that inhibit modification, and addresses critical second liens that often get in the way of effective mortgage modifications.
Explaining the Power-Law Degree Distribution in a Social Commerce Network
Social commerce is an emerging trend in which online shops create referral hyperlinks to other shops in the same online marketplace. We study the evolution of a social commerce network in a large online marketplace. Our dataset starts before the birth of the network (at which points shops were not linked to each other) and includes the birth of the network. The network under study exhibits a typical power-law degree distribution. We empirically compare a set of edge formation mechanisms (including preferential attachment and triadic closure) that may explain the emergence of this property.
Field Experiments in Class Size from the Early Twentieth Century
In this essay, I provide an overview of the scope and breadth of the field experiments in class size conducted prior to World War II, the motivations behind them, and how their experimental designs were crafted to deal with perceived sources of bias. I conclude with a discussion of how one might interpret the findings of these early experimental results alongside more recent research, and how research on class size has shifted towards using instrumental variables rather than field experiments to address the class size issue empirically.
Financial Globalization: A Reappraisal
The literature on the benefits and costs of financial globalization for developing countries has exploded in recent years, but along many disparate channels with a variety of apparently conflicting results. There is still little robust evidence of the growth benefits of broad capital account liberalization, but a number of recent papers in the finance literature report that equity market liberalizations do significantly boost growth.
Financial Innovation, Regulation, and Reform
Financial innovations often respond to regulation by sidestepping regulatory restrictions that would otherwise limit activities in which people wish to engage. Securitization of loans (e.g., credit card receivables, or subprime residential mortgages) is often portrayed, correctly, as having arisen in part as a means of "arbitraging" regulatory capital requirements by booking assets off the balance sheets of regulated banks.
Goals gone wild: The systematic side effects of overprescribing goal setting
For decades, goal setting has been promoted as a halcyon pill for improving employee motivation and performance in organizations. Advocates of goal setting argue that for goals to be successful, they should be specific and challenging, and countless studies find that specific, challenging goals motivate performance far better than "do your best" exhortations. The authors of this article, however, argue that it is often these same characteristics of goals that cause them to "go wild."
Going Bunkers: The Joint Route Selection and Refueling Problem
Managing shipping vessel profitability is a central problem in marine transportation. We consider two commonly used types of vessels—liners (ships whose routes are fixed in advance) and trampers (ships for which future route components are selected based on available shipping jobs)—and formulate a vessel profit maximization problem as a stochastic dynamic program. For liner vessels, the profit maximization reduces to the problem of minimizing refueling costs over a given route subject to random fuel prices and limited vessel fuel capacity.
High idiosyncratic volatility and low returns: International and further U.S. evidence
Stocks with recent past high idiosyncratic volatility have low future average returns around the world. Across 23 developed markets, the difference in average returns between the extreme quintile portfolios sorted on idiosyncratic volatility is -1:31% per month, after controlling for world market, size, and value factors. The effect is individually significant in each G7 country. In the United States, we rule out explanations based on trading frictions, information dissemination, and higher moments.
How Should Public Pension Plans Invest?
How public pension plan assets should be invested is an important but unsettled question. Some observers endorse the standard practice of investing heavily in higher yielding but riskier equities, reasoning that the higher average returns will reduce future required tax receipts and also help to reduce underfunding over time. Others advocate a more conservative approach that reduces the volatility of funding levels and the likelihood of severe shortfalls during economic downturns when government resources are already constrained.
I'll know what you're like when I see how you feel: How and when affective displays adjust behavior-based impressions
Accumulating evidence suggests that targets' displays of emotion shape perceivers' impression of those targets. Prior research has highlighted generalization effects, such as an angry display prompting an impression of hostility. In two studies, we went beyond generalization to examine the interaction of displays and behaviors, finding new evidence of augmenting effects (behavior-correspondent inferences are stronger when behavior is accompanied by positive affect) and discounting effects (such inferences are weaker when behavior is accompanied by negative affect).
Illusory Control: A generative force behind power's far-reaching effects
Three experiments demonstrated that the experience of power leads to an illusion of personal control. Regardless of whether power was experientially primed (Experiments 1 and 3) or manipulated through roles (manager vs. subordinate; Experiment 2), it led to perceived control over outcomes that were beyond the reach of the power holder.
Intentionality in intuitive versus analytic processing: Insights from social cognitive neuroscience
Intentionality in Intuitive Versus Analytic Processing: Insights from Social Cognitive Neuroscience
A recurring theme in attribution theory is that lay explanations for intentional and nonintentional behaviors diverge (Buss, 1978; Fincham & Jaspers, 1980; Kruglanki, 1975; Malle, 2004; White, 1991). In this vein, Reeder (this issue) proposes that they evoke different inferential paths that produce different attributional patterns. In response to nonintentional behavior, perceivers think like scientists, reasoning abstractly about causes, seeking parsimony by discounting personal forces given plausible situational forces.
Internal Pricing
This monograph focuses on the use of incomplete contracting models to study transfer pricing. Intrafirm pricing mechanisms affect division managers' incentives to trade intermediate products and to undertake relationship-specific investments so as to increase the gains from trade. Letting managers negotiate over the transaction is known to cause holdup (underinvestment) problems. Yet, in the absence of external markets, negotiations frequently outperform cost-based mechanisms, because negotiations aggregate cost and revenue information more efficiently into prices.
Introduction: Negotiations and achieving the social cognition dream
This special issue was conceived as a way to highlight how social cognition researchers are using the paradigm of negotiations to ask and answer a range of important questions central to their core concerns: how do communication media affect social information processing; how do different roles affect preferred processing styles; how do goals and expectancies shape interactions and outcomes?
Is PIN Priced Risk?
Several recent papers assume that private information (PIN), proposed by Easley et al. [2002. Is information risk a determinant of asset returns? Journal of Finance 57, 218–2221; 2004. Factoring information into returns. Working Paper, Cornell University], is a determinant of stock returns. We replicate Easley et al. (2002) and show that while PIN does predict future returns in the sample they analyze, the effect is not robust to alternative specifications and time periods.
Liquidity: Considerations of a Portfolio Manager
This paper examines liquidity and how it affects the behavior of mutual fund portfolio managers, who account for a significant portion of trading in many assets. We define an asset to be perfectly liquid if a portfolio manager can trade the quantity she desires when she desires at a price not worse than the uninformed expected value. A portfolio manager is limited by both what she needs to attain and the ease with which she can attain it, making her sensitive to three dimensions of liquidity: price, timing, and quantity.
Market and Public Liquidity
As the record of Fed interventions from December 2007 to December 2008 make abundantly clear, a foremost concern of monetary authorities in responding to the financial crisis has been to avoid a repeat of the great depression, and especially a repeat of the monetary contraction identified as the major cause of the 1930s depression.
Marketing and Innovation Management: An Integrated Perspective
The relevance and importance of marketing in innovation management has been questioned in recent years. Marketing has been blamed directly or indirectly for poor returns on investment in innovation, and marketing models of the diffusion of innovations have not been widely adopted. In this monograph we argue that marketing is currently in a unique position to reaffirm its critical role in innovation management. We review some recent research that has already started this "reinstatement" process and propose some future directions that may help complete it.
Mindful Judgment and Decision Making
Monopoly pricing with limited demand information
Traditional monopoly pricing models assume that firms have full information about the market demand and consumer preferences. In this article, we study a prototypical monopoly pricing problem for a seller with limited market information and different levels of demand learning capability under relative performance criterion of the competitive ratio (CR). We provide closed-form solutions for the optimal pricing policies for each case and highlight several important structural insights.
Neighborhood Matters: The Impact of Location on Broad Based Stock Option Plans
We find that fixed effects related to the location of firm's headquarters explain variation in broad based option grants after controlling for industry effects and firm characteristics traditionally known to affect option granting. Location matters because of local labor market conditions and social interaction with neighboring firms.
Neural Mechanisms of Social Influence
The present investigation explores the neural mechanisms underlying the impact of social influence on preferences. We socially tagged symbols as valued or not — by exposing participants to the preferences of their peers — and assessed subsequent brain activity during an incidental processing task in which participants viewed popular, unpopular, and novel symbols.
Nonfinancial Performance Measures as Coordination Devices
We investigate how nonfinancial performance measures (NPMs) can be used to encourage cooperation across divisions. The implementation of a project often requires joint efforts by multiple divisions. However, privately informed division managers sometimes find it in their self-interest to forgo profitable joint projects or to underinvest in relationship-specific assets.
On good scholarship, goal setting, and scholars gone wild
In this article, we define good scholarship, highlight our points of disagreement with Locke and Latham (2009), and call for further academic research to examine the full range of goal setting's effects. We reiterate our original claim that goal setting, like a potent medication, can produce both beneficial effects and systematic, negative outcomes, and as a result, it should be carefully prescribed and closely monitored.
Optimal Filtering of Jump Diffusions: Extracting Latent States from Asset Prices
This paper provides an optimal filtering methodology in discretely observed continuous-time jump-diffusion models. Although the filtering problem has received little attention, it is useful for estimating latent states, forecasting volatility and returns, computing model diagnostics such as likelihood ratios, and parameter estimation. Our approach combines time-discretization schemes with Monte Carlo methods. It is quite general, applying in nonlinear and multivariate jump-diffusion models and models with nonanalytic observation equations.
Pointwise stationary fluid models for stochastic processing networks
Generalizing earlier work on staffing and routing in telephone call centers, we consider a processing network model with large server pools and doubly stochastic input flows. In this model the processing of a job may involve several distinct operations. Alternative processing modes are also allowed. Given a finite planning horizon, attention is focused on the two-level problem of capacity choice and dynamic system control. A pointwise stationary fluid model (PSFM) is used to approximate system dynamics, which allows development of practical policies with a manageable computational burden.
Preserving Slave Families for Profit: Traders' Incentives and Pricing in the New Orleans Slave Market
We investigate determinants of slave family discounts in the New Orleans slave market. We find large price discounts for families unrelated to scale effects, childcare costs, legal restrictions, or transport costs. We posit that because family members voluntarily cared for each other, sellers sometimes found it advantageous to keep families together (when families included needy or dependent members). Evidence from ship manifests carrying slaves for sale in New Orleans provides direct evidence for selectivity bias in explaining slave family discounts.
Pushing up to a point: Assertiveness and effectiveness in leadership and interpersonal dynamics
Past work on interpersonal assertiveness and organizational effectiveness paints a mixed picture: some research suggests a positive link, other work highlights negative effects. This article reviews recent research and an account that stems from a different perspective, looking at assertiveness as a factor in leadership shortcomings and failure. This approach suggests that interpersonal assertiveness is a major factor and has a curvilinear, inverted-U-shaped relationship with leadership effectiveness. I review evidence for this effect as well as social and instrumental outcome mediators.
Quasi-Robust Multiagent Contracts
A criticism of mechanism design theory is that the optimal mechanism designed for one environment can produce drastically different actions, outcomes, and payoffs in a second, even slightly different, environment. In this sense, the theoretically optimal mechanisms usually studied are not "robust." To study robust mechanisms while maintaining an expected utility maximization approach, we study a multiagent model in which the mechanism must be designed before the environment is as well understood as is usually assumed.
Reevaluating the Modernization Hypothesis
We revisit and critically reevaluate the widely accepted modernization hypothesis which claims that per capita income causes the creation and the consolidation of democracy. Existing studies find support for this hypothesis because they fail to control for the presence of omitted variables. Controlling for these factors either by including country fixed effects in a linear model or by including parameterized random effects in a non-linear double hazard model removes the correlation between income and the likelihood of transitions to and from democratic regimes.
Relationship Banking and the Pricing of Financial Services
We investigate pricing effects of the joint production of loans and security underwritings. We control for firm and borrower characteristics, including differences in sequencing, which are important for pricing. Contrary to previous studies, when banks combine lending and underwriting within the same customer relationship they charge premiums for both loans and underwriting services. Abstracting from effects of joint production within relationships, depository banks engaged in underwriting price lending and underwriting more cheaply than stand alone investment banks.
Repetitive regret, depression, and anxiety: Findings from a nationally representative survey
Past research has established a connection between regret (negative emotions connected to cognitions about how past actions might have achieved better outcomes) and both depression and anxiety. In the present research, the relations between regret, repetitive thought, depression, and anxiety were examined in a nationally representative telephone survey. Although both regret and repetitive thought were associated with general distress, only regret was associated with anhedonic depression and anxious arousal.
Response to FAF Exposure Draft, 'Proposed Changes to Oversight, Structure, and Operations of the FAF, FASB, and GASB'
The Financial Accounting Standards Committee of the American Accounting Association (the Committee) is charged with responding to requests for comments from standard-setters on issues related to financial reporting. The Financial Accounting Foundation (FAF) released for public comment on December 18, 2007 with a response period ending on February 10, 2008, "Proposed Changes to Oversight, Structure, and Operations of the FAF, FASB, and GASB (the proposal). This commentary concerns four important public policy issues in the proposal with the most relevance for accounting standard setting:
Rethinking Regulatory Engagement Theory
We offer a constructive critique of Regulatory Engagement Theory (Higgins, E. T. (2006). Value from hedonic experience and engagement. Psychological Review, 113(3), 439?460.; Higgins, E. T., and Scholer, A. A. (2009). Engaging the consumer: The science and art of the value creation process. Journal of Consumer Psychology, 19(2).). After highlighting the major tenets of the theory and its main contributions, we identify some of its conceptual ambiguities.
Risk, Uncertainty, and Asset Prices
We identify the relative importance of changes in the conditional variance of fundamentals (which we call "uncertainty") and changes in risk aversion in the determination of the term structure, equity prices, and risk premiums. Theoretically, we introduce persistent time-varying uncertainty about the fundamentals in an external habit model. The model matches the dynamics of dividend and consumption growth, including their volatility dynamics and many salient asset market phenomena.
Saddlepoint approximations for affine jump-diffusion models
Affine jump-diffusion (AJD) processes constitute a large and widely used class of continuous-time asset pricing models that balance tractability and flexibility in matching market data. The prices of e.g., bonds, options, and other assets in AJD models are given by extended pricing transforms that have an exponential-affine form; these transforms have been characterized in great generality by Duffie et al. [2000. Transform analysis and asset pricing for affine jump-diffusions. Econometrica 68, 1343–1376].
The brand anchoring effect: A judgment bias arising from brand awareness and temporary accessibility
Anchoring refers to a biased judgment on a stimulus based on the initial assessment of another stimulus and the insufficient adjustment away from that initial assessment. Previous research indicates that anchoring seems to be a general phenomenon, underlying a wide variety of processing strategies (Epley and Gilovich 2001; Johnson and Puto 1987; Tversky and Kahnemann 1974). Every time when individuals form an impression or an image about a stimulus while another stimulus is present, these impressions may be subject to anchoring effects.
The Changing Face of Private Equity: How Modern Private Equity Firms Manage Investment Portfolios
The concept of brand experience
The Ease of Computation Effect: The Interplay of Metacognitive Experience and Naive Theories in Judgments of Numerical Difference
The Mortgage Market Meltdown and House Prices
This paper argues that the U.S. mortgage debacle must be analyzed in the broader setting of global real estate markets. Recent U.S. home price growth closely tracked increases in other developed economies. The analysis distinguishes among market regions in terms of supply elasticity and localized transactions-costs. A series of user-cost models are presented which imply that interest rate fluctuations must figure prominently in any explanation of movements in price/rent ratios. National factors such as the expansion of subprime credit must also be accounted for.
The Rise in Mortgage Defaults
The first hints of trouble in the mortgage market surfaced in mid-2005, and conditions subsequently began to deteriorate rapidly. Mortgage defaults and delinquencies are particularly concentrated among borrowers whose mortgages are classified as "subprime" or "near-prime." The main factors underlying the rise in mortgage defaults appear to be declines in house prices and deteriorated underwriting standards, in particular an increase in loan-to-value ratios and in the share of mortgages with little or no documentation of income.
To start low or to start high? The case of auctions vs. negotiations
We document how starting prices differentially impact outcomes in negotiations and auctions. In negotiations (where the number of actors is often predetermined), starting prices drive cognitive processes, leading individuals to selectively focus on information consistent with, and make valuations similar to, the starting value. Thus, starting high will often lead to ending high in negotiations.
Toward a more complete understanding of the link between multicultural experience and creativity
In our recent article (Leung, Maddux, Galinsky, & Chiu, April 2008), we presented evidence supporting the idea that multicultural experience can facilitate creativity. In a reply to that article, Rich (2009, this issue) has argued that our review, although timely and important, was somewhat limited in scope, focusing mostly on smaller forms of creativity ("little c": e.g., paper- and-pencil measures of creativity) as well as on larger forms of multicultural experience ("Big M": e.g., living in a foreign country).
The Latest Research
Breaking the Cycle: How the News and Markets Created a Negative Feedback Loop in COVID-19
New research from CBS Professor Harry Mamaysky reveals how negativity in the news and markets can escalate a financial crisis.
Mind the Trade Gap: How a Relational Perspective Can Enhance Understanding
Adapted from “Global Value Chains in Developing Countries: A Relational Perspective from Coffee and Garments,” by Laura Boudreau of Columbia Business School, Julia Cajal Grossi of the Geneva Graduate Institute, and Rocco Macchiavello of the London School of Economics.
Online Shopping: What Companies Can Conclude Based on How Consumers Search
Adapted from “Online Advertising as Passive Search,” by Raluca M. Ursu of New York University Stern School of Business, Andrey Simonov of Columbia Business School, and Eunkyung An of New York University Stern School of Business.
Meaning in the Age of Autonomy: Marketing Autonomous Products to Consumers Who Value Manual Labor
This paper from Columbia Business School, “Meaning of Manual Labor Impedes Consumer Adoption of Autonomous Products,” explores marketing solutions to some consumers’ resistance towards autonomous products. The study was co-authored by Emanuel de Bellis of the University of St. Gallen, Gita Johar of Columbia Business School, and Nicola Poletti of Cada.
My Work Is My Bond? A Financial-Asset Approach to Wage Contracts Could Lessen Inequality
Co-authored by John B. Donaldson of Columbia Business School, “The Macroeconomics of Stakeholder Equilibria,” proposes a model for a purely private, mutually beneficial financial agreement between worker and firm that keeps decision-making in the hands of stockholders while improving the employment contract for employees.