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.
New research from CBS Professor Harry Mamaysky reveals how negativity in the news and markets can escalate a financial crisis.
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.
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.
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.
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.
At Columbia Business School, our faculty members are at the forefront of research in their respective fields, offering innovative ideas that directly impact the practice of business today. A quick glance at our publication on faculty research, CBS Insights, will give you a sense of the breadth and immediacy of the insight our professors provide.
As a student at the School, this will greatly enrich your education. In Columbia classrooms, you are at the cutting-edge of industry, studying the practices that others will later adopt and teach. As any business leader will tell you, in a competitive environment, being first puts you at a distinct advantage over your peers. Learn economic development from Ray Fisman, the Lambert Family Professor of Social Enterprise and a rising star in the field, or real estate from Chris Mayer, the Paul Milstein Professor of Real Estate, a renowned expert and frequent commentator on complex housing issues. This way, when you complete your degree, you'll be set up to succeed.
Columbia Business School in conjunction with the Office of the Dean provides its faculty, PhD students, and other research staff with resources and cutting edge tools and technology to help push the boundaries of business research.
Specifically, our goal is to seamlessly help faculty set up and execute their research programs. This includes, but is not limited to:
All these activities help to facilitate and streamline faculty research, and that of the doctoral students working with them.
The better able you are to "get inside the head" of your opponent, the better your negotiated outcomes are likely to be. But very few of us are born with the ability to take on the perspective of others effectively. Fortunately, this skill can be learned. The authors of this article show you how to use perspective taking — the active consideration and appreciation of another person's viewpoint, role, and underlying motivations — to understand your counterpart better and improve the quality of your deals.
Objectives: Significant variation in emergency department (ED) patient arrival rates necessitates the adjustment of staffing patterns to optimize the timely care of patients. This study evaluated the effectiveness of a queueing model in identifying provider staffing patterns to reduce the fraction of patients who leave without being seen.
Time preference is a key determinant of occupational choice and investments in human capital. Since careers are characterized by different wage growth prospects, individual discount rates play an important role in the relative valuation of jobs or occupations. We predict that individuals with lower discount rates are more likely to select into jobs or occupations with steeper wage profiles. To test this hypothesis we use smoking as an instrument for time preference.
We show that the accrual anomaly documented by Sloan (1996) [Do stock prices fully reflect information in accruals and cash flows about future earnings? The Accounting Review 71: 289–315] is concentrated in firms with high idiosyncratic stock return volatility making it risky for risk-averse arbitrageurs to take positions in stocks with extreme accruals. Moreover, the accrual anomaly is found in low-price and low-volume stocks, suggesting that transaction costs impose further barriers to exploiting accrual mispricing.
We study how multi-product queueing systems should be controlled so that sojourn times (or end-to-end delays) do not exceed specified leadtimes. The network dynamically decides when to admit new arrivals and how to sequence the jobs in the system. To analyze this difficult problem, we propose an approach based on fluid-model analysis that translates the leadtime specifications into deterministic constraints on the queue length vector.
Membership in certain intergovernmental organizations (IGOs), such as the World Trade Organization, has long been argued to stimulate trade. Yet, evidence linking IGOs to trade is mixed. We argue that identifying the influence of IGOs requires attention not only to the institutions IGOs enact, but to the network through which they enact them. We incorporate the full set of IGOs by using shared-IGO membership to create a network of connectivity between countries.
This research examines the dynamic process of inference updating. The authors present a framework that delineates two mechanisms that guide the updating of personality trait inferences about brands. The results of three experiments show that chronics (those for whom the trait is accessible) update their initial inferences on the basis of the trait implications of new information. Notably, nonchronics (those for whom the trait is not accessible) also update their initial inferences, but they do so on the basis of the evaluative implications of new information.
This paper develops a theory of control as a signal of congruence of objectives, and applies it to financial contracting between an investor and a privately informed entrepreneur. We show that formal investor control is (i) increasing in the information asymmetries ex ante, (ii) increasing in the uncertainty surrounding the venture ex post, (iii) decreasing in the entrepreneur's resources, and (iv) increasing in the entrepreneur's incentive conflict. In contrast, real investor control—that is, actual investor interference—is decreasing in information asymmetries.
A quarter-century ago, Miles and Ezzell (1980) solved the valuation problem of a firm that follows a constant leverage ratio L = D/S. However, to this day, the proper discounting of free cash flows and the computation of WACC are often misunderstood by scholars and practitioners alike. For example, it is common for textbooks and fairness opinions to discount free cash flows at WACC with beta input Beta(S) = [1 + (1 - Tax Rate)L]Beta(U), although the latter is not consistent with the assumption of constant leverage.
A quarter-century ago, Miles and Ezzell (1980) solved the valuation problem of a firm that follows a constant leverage ratio L = D/S. However, to this day, the proper discounting of free cash flows and the computation of WACC are often misunderstood by scholars and practitioners alike. For example, it is common for textbooks and fairness opinions to discount free cash flows at WACC with beta input Beta(S) = [1 + (1 - Tax Rate)L]Beta(U), although the latter is not consistent with the assumption of constant leverage.
Under what conditions do intricate pre-planned arguments enable negotiators to dominate the conversation and ultimately the outcome? We proposed the advantage occurs when the communication media involves the expectation of rapid turn-taking, because counterparts cannot generate rebuttals in time and end up making concessions. In an experiment with a negotiation task, sellers were provided with either intricate or simple arguments to support a competitive tactic and negotiated via either a quick-tempo (Instant Messaging) or slow-tempo (E-mail) medium.
Prof. Donald E. Sexton, in an exclusive write-up for OER, focuses on how a country brand affects behaviour through perceived value and what factors influence the branding investment process.
The authors demonstrate that in dyadic negotiations, negotiators with a promotion regulatory focus achieve superior outcomes than negotiators with prevention regulatory focus in two ways. First, a promotion focus leads negotiators to claim more resources at the bargaining table. In the first two studies, promotion-focused negotiators paid more attention to their target prices (i.e., their ideal outcomes) and achieved more advantageous distributive outcomes than did prevention-focused negotiators.
I analyze corporate social responsibility (CSR) from economic and financial perspectives, and suggest how it is reflected in financial markets. CSR is defined as a programme of actions to reduce externalized costs or to avoid distributional conflicts. It has evolved in response to market failures, a Coasian solution to problems associated with social costs. The analysis suggests that there is a resource-allocation role for CSR programmes in cases of market failure through private-social cost differentials, and also where distributional disagreements are strong.
We show that equity market liberalizations, on average, lead to a one percent increase in annual real economic growth over a five-year period. The effect is robust to alternative definitions of liberalization and does not reflect variation in the world business cycle. The effect also remains intact when liberalization is instrumented with quality of institutions-variables that explain liberalization but not growth and when a growth opportunity measure is included in the regression. Capital account liberalization has a less robust effect on growth than equity market liberalization has.
This paper examines inventory management from an incentive perspective. We show that when a manager has private information about future attainable revenues, the residual income performance measure based on historical cost can achieve optimal (second-best) incentives with regard to managerial effort as well as production and sales decisions. The LIFO (last-in—first-out) inventory flow rule is shown to be preferable to the FIFO (first-in—first-out) rule for the purpose of aligning incentives.
The current consensus on indirect tax reform in developing countries favors a reduction in trade taxes with an increase in VAT to raise revenue. The theoretical results on selective reform that underlie this consensus are, however, derived from partial models that ignore the existence of an informal economy. Once the incomplete coverage of VAT due to an informal economy is acknowledged, we show that, contrary to the current consensus, the standard revenue-neutral selective reform of trade taxes and VAT reduces welfare under plausible conditions.
We propose a measure of capital market integration arising from a conditional regime-switching model. Our measure allows us to describe expected returns in countries that are segmented from world capital markets in one part of the sample and become integrated later in the sample. We find that a number of emerging markets exhibit time-varying integration. Some markets appear more integrated than one might expect based on prior knowledge of investment restrictions. Other markets appear segmented even though foreigners have relatively free access to their capital markets.
We provide a formal treatment of both static and dynamic portfolio choice using the Disappointment Aversion preferences of Gul (1991. Econometrica 59(3), 667-686), which imply asymmetric aversion to gains versus losses. Our dynamic formulation nests the standard CRRA asset allocation problem as a special case. Using realistic data generating processes, we find reasonable equity portfolio allocations for disappointment averse investors with utility functions exhibiting low curvature.
We present an equilibrium production economy in which default occurs in equilibrium. The borrower chooses optimal default and consumption policies, taking into account that default is costly and the lender gains access to the technology upon default. We derive asset prices and default premia in this economy. The borrower's relative risk aversion in wealth increases with decreases in wealth due to the increased possibility of default at low wealth levels. This produces a time-varying pricing kernel and a countercyclical equity premium.
Dispersion in investor beliefs and short-selling constraints can lead to stock market bubbles. This paper argues that firms, unlike investors, can exploit such bubbles by issuing new shares at inflated prices. This lowers the cost of capital and increases real investment. Perhaps surprisingly, large bubbles are not eliminated in equilibrium nor do large bubbles necessarily imply large distortions. Using the variance of analysts?
We survey the literature analyzing the price formation and trading process, and the consequences of market organization for price discovery and welfare. We offer a synthesis of the theoretical microfoundations and empirical approaches. Within this framework, we confront adverse selection, inventory costs and market power theories to the evidence on transactions costs and price impact. Building on these results, we proceed to an equilibrium analysis of policy issues.
Objective: The objective of this work was the investigation of the extent to which the introduction of new drugs has increased society's ability to produce goods and services by increasing the number of hours worked per member of the working-age population. Methods: Econometric models of ability-to-work measures from data on approximately 200,000 individuals with 47 major chronic conditions observed throughout a 15-year period (1982-1996) were estimated.
The recent media and political attention on service outsourcing from developed to developing countries gives the impression that outsourcing is exploding. As a result, workers in industrial countries are anxious about job losses. This paper aims to establish what are the hypes and what are the facts. The results show that although service outsourcing has been steadily increasing it is still very low, and that in the United States and many other industrial countries "insourcing" of services is greater than outsourcing.
The present article offers a conceptual model for how the cognitive processes associated with perspective-taking facilitate social coordination and foster social bonds. We suggest that the benefits of perspective-taking accrue through an increased self-other overlap in cognitive representations and discuss the implications of this perspective-taking induced self-other overlap for stereotyping and prejudice.
Participants recalled instances when they felt vicariously ashamed or guilty for another's wrongdoing and rated their appraisals of the event and resulting motivations. The study tested aspects of social association that uniquely predict vicarious shame and guilt. Results suggest that the experience of vicarious shame and vicarious guilt are distinguishable. Vicarious guilt was predicted by one's perceived interdependence with the wrongdoer (e.g., high interpersonal interaction), an appraisal of control over the event, and a motivation to repair the other person's wrongdoing.
This paper investigates the effect of decision-makers'culture on their implicit choice of how to make decisions. In a content analysis of major decisions described in American and Chinese twentieth-century novels, we test a series of hypotheses based on prior theoretical and empirical investigations of cross-cultural variation in human motivation and decision processes.
We present a theory of cultural evolution based upon a renormalization group scheme. We consider rational but cognitively limited agents who optimize their decision-making process by iteratively updating and refining the mental representation of their natural and social environment. These representations are built around the most important degrees of freedom of their world. Cultural coherence among agents is defined as the overlap of mental representations and is characterized using an adequate order parameter.
We consider a model of a service system that delivers two nonsubstitutable services to a market of heterogenous users. The first service is delivered subject to a "guaranteed" (G) processing rate, and the second is a "best-effort" (BE) type service in which residual capacity not allocated to the guaranteed class is shared among BE users. Users, in turn, are sensitive to both price and congestion-related effects. The service provider's objective is to optimally design the system so as to extract maximum revenues.
We consider a model of a service system that delivers two nonsubstitutable services to a market of heterogenous users. The first service is delivered subject to a "guaranteed" (G) processing rate, and the second is a "best-effort" (BE) type service in which residual capacity not allocated to the guaranteed class is shared among BE users. Users, in turn, are sensitive to both price and congestion-related effects. The service provider's objective is to optimally design the system so as to extract maximum revenues.
We demonstrate the effect of consumers' lay theories of self-control on goal-directed behavior as evidenced by New Year's and other resolutions. Across three studies, we find that individuals who believe that self-control is a malleable but inherently limited (vs. unlimited) resource tend to set fewer resolutions. Using respondents' own idiographic resolutions, this result is shown to hold in general as well as in consumption-specific domains regardless of whether lay theories are measured or manipulated.
The author discusses his work with the Conference Board's Council on Corporate Brand Management to develop a brand scorecard for monitoring the health of a brand.
An unanswered question in the debate on public sector inefficiency is whether reforms other than government divestiture can effectively substitute for privatization. Using a 1981–1995 panel dataset of all public and private manufacturing establishments in Indonesia, we analyze whether public sector inefficiency is primarily due to agency-type problems or to the environment in which public sector enterprises operate, as measured by the soft budget constraint and the degree of internal and external competition.
Wefind that domestic currency, currency corrected for foreign holdings, has a substantial share in forecast error variance decomposition of US inflation. We also find that domestic currency has higher share of the forecast error variance decomposition of US real output than any other narrow monetary aggregate we consider.
Most models of how perceivers infer the widespread attitudes and qualities of social groups revolve around either the self (social projection, false consensus) or stereotypes (stereotyping). I suggest people rely on both of these inferential strategies, with perceived general similarity moderating their use, leading to increased levels of projection and decreased levels of stereotyping.
Interest in the role of entrepreneurial entry in innovation raises the question of the extent to which tax policy encourages or discourages entry. We find that, while the level of the marginal tax rate has a negative effect in entrepreneurial entry, the progressivity of the tax also discourages entrepreneurship, and significantly so for some groups of households. These effects are principally traceable to the upside' or success' convexity of the household tax schedule.
This paper develops algorithms for the pricing of discretely sampled barrier, lookback and hindsight options and discretely exercisable American options. Under the Black-Scholes framework, the pricing of these options can be reduced to evaluation of a series of convolutions of the Gaussian distribution and a known function. We compute these convolutions efficiently using the double-exponential integration formula and the fast Gauss transform.
We consider a call center model with m input flows and r pools of agents; the m-vector [lamda] of instantaneous arrival rates is allowed to be time dependent and to vary stochastically. Seeking to optimize the trade-off between personnel costs and abandonment penalties, we develop and illustrate a practical method for sizing the r agent pools. Using stochastic fluid models, this method reduces the staffing problem to a multidimensional newsvendor problem, which can be solved numerically by a combination of linear programming and Monte Carlo simulation.
A fictional example illustrates how interdependencies among products in the production process, and the costs associated with those interdependencies, challenge the ability of cost accounting systems to generate decision-useful product cost information. The cost interdependency in the current example is a production-line change-over cost that is incurred to retool a machine whenever the production process changes from one product to another.
In this paper, we examine how people evaluate unusual objects and how they intuit whether others will like those objects. We focus on two predictions. First, we believe that an object's uniqueness is susceptible to framing by drawing attention toward or away from the object's unusualness. We expect such "uniqueness framing" interacts with needs for uniqueness (NFU): high NFU perceivers will like the same objects (e.g., neckties, names) more when asked to dwell on the object's uniqueness vs. typicality while low NFU perceivers will like them less.
In this paper, we examine how people evaluate unusual objects and how they intuit whether others will like those objects. We focus on two predictions. First, we believe that an object's uniqueness is susceptible to framing by drawing attention toward or away from the object's unusualness. We expect such "uniqueness framing" interacts with needs for uniqueness (NFU): high NFU perceivers will like the same objects (e.g., neckties, names) more when asked to dwell on the object's uniqueness vs. typicality while low NFU perceivers will like them less.
How does one tell when rapid growth in house prices is caused by fundamental factors of supply and demand and when it is an unsustainable bubble? In this paper, we explain how to assess the state of house prices - both whether there is a bubble and what underlying factors support housing demand - in a way that is grounded in economic theory. In doing so, we correct four common fallacies about the costliness of the housing market.
Outside the United States and the United Kingdom, large corporations usually have controlling owners, who are usually very wealthy families. Pyramidal control structures, cross shareholding, and super-voting rights let such families control corporations without making a commensurate capital investment. In many countries, a few such families end up controlling considerable proportions of their countries' economies. Three points emerge.
Prior research suggests that bicultural individuals (i.e., individuals with 2 distinct sets of cultural values) shift the values they espouse depending on cues such as language. The authors examined whether the effects of language extend to a potentially less malleable domain, behavioral decisions, exploring the extent to which bilingual individuals shift the underlying strategies used to resolve choice problems.
In this paper, we investigate the equilibrium behavior of decentralized supply chains with competing retailers under demand uncertainty. We also design contractual arrangements between the parties that allow the decentralized chain to perform as well as a centralized one.
For several decades, U.S. policy in telecommunications and electronic mass media focused on the encouragement of competition. This policy, usually known as deregulation but more accurately described as liberalization, is aimed at an opening of the market to competitors and a reduction of market power. There were numerous elements and proceedings to this policy by the Federal Communications Commission, the states? public service commissions and legislatures, the courts, and Congress. Of these actions, none was more comprehensive than the Telecommunications Act of 1996.
The collapse of Long Term Capital Management ("LTCM") in Fall 1998 and the Federal Reserve Bank's subsequent efforts to orchestrate a bailout raise important questions about the structure of the Bankruptcy Code. The Code contains numerous provisions affording special treatment to financial derivatives contracts, the most important of which exempts these contracts from the "automatic stay" and permits counterparties to terminate derivatives contracts with a debtor in bankruptcy and seize underlying collateral.