Columbia Business School Research

Information processing research published in the Journal of Consumer Research has produced theoretical advances in our understanding of consumer behavior. This article highlights two themes that have emerged in consumer research over the past 15 years. These are the interplay between motivation and cognition and the impact of implicit processes on consumer behavior. We examine these themes in three core areas of information processing research—memory, affect, and persuasion.

Event sponsors often do not receive proper credit for their efforts. This issue was examined in a field study involving over 300 baseball fans attending minor league games during the summer season. Signal detection analyses reveal that, even among such sports fans, the ability to correctly discriminate actual official sponsors of the home team from matched foils, although above chance, was rather poor. Consistent with recent laboratory findings, sponsor identification responses were further found to be heavily influenced by the mere plausibility of the brand as a potential sponsor.

New product development is integral to marketing. There are questions, however, regarding the extent to which new products are good and for whom they are good. While benefits may be obvious for manufacturers, sellers, and users of any particular product, stakeholders beyond the transaction and direct usage of said product may receive no benefits and perhaps may be harmed by new products.

We consider the problem of estimating convex boundaries from blurred and noisy observations. In our model, the convolution of an intensity function f is observed with additive Gaussian white noise. The function f is assumed to have convex support G whose boundary is to be recovered.

Counter to the "start high, end high" effect of anchors in individual judgments and dyadic negotiations, 6 studies using a diverse set of methodologies document how and why, in the social setting of auctions, lower starting prices result in higher final prices. Three processes contribute to this effect. First, lower starting prices reduce barriers to entry, which increase traffic and generate higher final prices. Second, lower starting prices entice bidders to invest time and energy (creating sunk costs) and, consequently, escalate their commitments.

Information markets are markets for contracts that yield payments based on the outcome of an uncertain future event, such as a presidential election. They have the potential to improve decision making and policies throughout the economy. At the same time, there are regulatory hurdles to establish such markets, largely arising from state prohibitions on Internet gambling.

The conference paper by Johnson (2006, Review of Accounting Studies, forthcoming) develops an incomplete-contracting transfer pricing model with a number of novel features: taxation, sequential investments, and intangible assets being transferred. This discussion aims to disentangle these features so as to highlight those that are the key drivers of the results. Moreover, I show that some of the results can be generalized to settings involving a greater level of technological interdependency between the divisions.

We study dating behavior using data from a Speed Dating experiment where we generate random matching of subjects and create random variation in the number of potential partners. Our design allows us to directly observe individual decisions rather than just final matches. Women put greater weight on the intelligence and the race of partner, while men respond more to physical attractiveness. Moreover, men do not value women's intelligence or ambition when it exceeds their own. Also, we find that women exhibit a preference for men who grew up in affluent neighborhoods.

When a boom ends, the downturn is generally sharp and short. When growth resumes, the boom is more gradual. Our explanation rests on learning about productivity. When agents believe productivity is high, they work, invest, and produce more. More production generates higher precision information. When the boom ends, precise estimates of the slowdown prompt decisive reactions: Investment and labor fall sharply. When growth resumes, low production yields noisy estimates of recovery. Noise impedes learning, slows recovery, and makes booms more gradual than downturns.

Because it is difficult to fully control behavior with incentives and contracts, the success of organizations depends on members' willingness to take unselfish, efficiency-enhancing actions, or on what George A. Akerlof and Rachel E. Kranton (2005) call "motivational capital" (if, for example, workers may put in extra effort even if it is not rewarded, and sanction selfish behavior by others even when it is costly to do so, this may fill the breach left by regular incentive schemes).

Can one identify a "philosophy of regulation" that underlies the regulatory advocacy of the Fed under Chairman Greenspan? Although the Fed's advocacy on various matters may appear somewhat contradictory or, at least, philosophically heterodox, the Fed has behaved in a manner that is remarkably predictable, once one takes account of the political arena in which both regulatory and monetary policy are made. There is fairly straightforward logic to the Fed's regulatory advocacy.

The stochastic differential equations for affine jump diffusion models do not yield exact solutions that can be directly simulated. Discretization methods can be used for simulating security prices under these models. However, discretization introduces bias into the simulation results and a large number of time steps may be needed to reduce the discretization bias to an acceptable level. This paper suggests a method for the exact simulation of the stock price and variance under Heston's stochastic volatility model and other affine jump diffusion processes.

We examine the effects of both equity market liberalization and capital account openness on real consumption growth variability. We show that financial liberalization is mostly associated with lower consumption growth volatility. Our results are robust, surviving controls for business-cycle effects, economic and financial development, the quality of institutions, and other variables. Countries that have more open capital accounts experience a greater reduction in consumption growth volatility after equity market openings.

Records of over half a million participants in more than 600 401(k) plans indicate that participants tend to allocate their contributions evenly across the funds they use, with the tendency weakening with the number of funds used. The number of funds used, typically between three and four, is not sensitive to the number of funds offered by the plans, which ranges from 4 to 59. A participant?s propensity to allocate contributions to equity funds is not very sensitive to the fraction of equity funds among offered funds.

*Winner, Distinguished Paper award of the Smith-Breeden Prize.

A consumer's decision to rely on a friend to act as an agent depends, in part, on beliefs about the friend's knowledge. Three studies examine the role of motivational and cognitive biases in estimating friends' personalized knowledge (e.g., knowledge of one's movie preferences). Results show that estimates of close friends' knowledge are less accurate than those of less close friends for personalized but not for impersonal knowledge.

Raghunathan and Pham (1999) observed that, although of the same valence, states of anxiety and sadness have distinct effects on decision making. Results from two new experiments confirm that anxiety triggers a preference for options that are more rewarding and comforting. Our results also indicate that these effects are driven by an affect-as-information process, and are most pervasive when the source of anxiety or sadness is not salient.

Hospital diagnostic facilities, such as magentic resonance imaging centers, typically provide service to several diverse patient groups: outpatients, who are scheduled in advance; inpatients, whose demands are generated randomly during the day; and emergency patients, who must be served as soon as posssible. Our analysis focuses on two inter-related tasks: designing the outpatient appoitnment schedule, and establishing dynamic priority rules for admitting patients into service.

We develop discrete choice models that account for parameter driven preference dynamics. Choice model parameters may change over time because of shifting market conditions or due to changes in attribute levels over time or because of consumer learning. In this paper we show how such preference evolution can be modeled using hierarchial Bayesian state space models of discrete choice. The main feature of our approach is that it allows for the simultaneous incorporation of multiple sources of preference and choice dynamics.

Recent empirical research documents that the strong short-term relationship between U.S. monetary aggregates on one side and inflation and real output on the other has mostly disappeared since the early 1980s. Using the direct estimate of flows of U.S. dollars abroad we find that domestic money (currency corrected for the foreign holdings of dollars) contains valuable information about future movements of U.S. inflation and real output.

The authors posit that women can rely on self-monitoring to overcome negative gender stereotypes in certain performance contexts. In a study of mixed-sex task groups, the authors found that female group members who were high self-monitors were considered more influential and more valuable contributors than women who were low self-monitors. Men benefited relatively less from self-monitoring behavior.

We study nonparametric change-point estimation from indirect noisy observations. Focusing on the white noise convolution model, we consider two classes of functions that are smooth apart from the change-point. We establish lower bounds on the minimax risk in estimating the change-point and develop rate optimal estimation procedures. The results demonstrate that the best achievable rates of convergence are determined both by smoothness of the function away from the change-point and by the degree of ill-posedness of the convolution operator.

We examine the pricing of aggregate volatility risk in the cross-section of stock returns. Consistent with theory, we find that stocks with high sensitivities to innovations in aggregate volatility have low average returns. Stocks with high idiosyncratic volatility relative to the Fama and French (1993, Journal of Financial Economics 25, 2349) model have abysmally low average returns. This phenomenon cannot be explained by exposure to aggregate volatility risk.

We consider a single class open queueing network, also known as a generalized Jackson network (GJN). A classical result in heavy-traffic theory asserts that the sequence of normalized queue length processes of the GJN converge weakly to a reflected Brownian motion (RBM) in the orthant, as the traffic intensity approaches unity. However, barring simple instances, it is still not known whether the stationary distribution of RBM provides a valid approximation for the steady-state of the original network.

We provide a new rationale for pyramidal ownership in family business groups. A pyramid allows a family to access all retained earnings of a firm it already controls to set up a new firm, and to share the new firm's nondiverted payoff with shareholders of the original firm. Our model is consistent with recent evidence of a small separation between ownership and control in some pyramids, and can differentiate between pyramids and dual-class shares, even when either method can achieve the same deviation from one share–one vote.

The current research investigates whether observers blame leaders for organizational accidents even when these managers are known to be causally uninvolved. Past research finds that the public blames managers for organizational harm if the managers are perceived to have personally played a causal role. The present research argues that East Asian perceivers, who are culturally oriented to focus on the causal influence of groups [Menon, T., Morris, M. W., Chiu, C., & Hong, Y. (1999). Culture and the construal of agency: Attribution to individual versus group dispositions.

Although agency theory suggests that firms should index executive compensation to remove market-wide effects (i.e., RPE), there is little evidence to support this theory. Oyer (2004, Journal of Finance 59, 1619–1649) posits that an absence of RPE is optimal if the CEO's reservation wages from outside employment opportunities vary with the economy's fortunes. We directly test and find support for Oyer's (2004) theory. We argue that the CEO's outside opportunities depend on his talent, as proxied by the CEO's financial press visibility and his firm's industry-adjusted ROA.

This paper compares methods for computing the distribution of loss from defaults in a credit portfolio. The methods are applied in the Gaussian copula framework for credit risk and take advantage of the conditional independence of defaults in this framework. As a benchmark we use vanilla Monte Carlo simulation to estimate the tail probabilities of the total losses of the credit portfolio. The first method to be compared is a recursive algorithm to obtain the exact distribution of the total loss of the portfolio, conditional on observed values for the systematic risk factors.

To understand why developing countries do not automatically benefit from financial globalization, both the need for a minimum institutional quality (the threshold hypothesis) and the possibility of varying volatility of different types of capital flows (the composition hypothesis) have been suggested. This paper contends that the two hypotheses are intimately linked, and provides supportive empirical evidence.

This paper analyzes a call center model with m customer classes and r agent pools. The model is one with doubly stochastic arrivals, which means that the m-vector λ of instantaneous arrival rates is allowed to vary both temporally and stochastically. Two levels of call center management are considered: staffing the r pools of agents, and dynamically routing calls to agents. The system manager's objective is to minimize the sum of personnel costs and abandonment penalties.

Expanding upon Simon's (1955) seminal theory, this investigation compared the choice-making strategies of maximizers and satisficers, finding that maximizing tendencies, although positively correlated with objectively better decision outcomes, are also associated with more negative subjective evaluations of these decision outcomes. Specifically in the fall of their final year in school, students were administered a scale that measured maximizing tendencies and were than followed over the course of the year as they searched for jobs.

The provision of choice is one of the most common vehicles through which managers empower employees in organizations. Although past psychological and organizational research persuasively suggests that choice confers personal agency, and is thus intrinsically motivating, emerging research indicates that there could be potential pitfalls. In this chapter, we examine the various factors that could influence the effects of choice. Specifically, we examine individual-level factors such as the chooser's socioeconomic status and cultural background.

Multidivisional firms frequently rely on external market prices in order to value internal transactions across profit centers. This paper examines the transfer pricing problem in a setting in which an upstream division has monopoly power in selling a proprietary component both to a downstream division within the same firm and to external customers. When internal transfers are valued at the prevailing market price, the resulting transactions are distorted by double marginalization.

This 2005 roundtable addressed stock market valuation and its implications for a number of important corporate financial management functions, including internal performance evaluation and capital budgeting. Panelists included Tom Copeland of MIT, Bennett Stewart of Stern Stewart, Trevor Harris of Morgan Stanley, Stephen O'Byrne of Shareholder Value Advisors, Justin Pettit of UBS, David Wessels of University of Pennsylvania, and Don Chew of Morgan Stanley. John Martin of Baylor University and Sheridan Titman of University of Texas at Austin moderated.

This 2005 roundtable aimed to present corporate managers and academics with a more accurate picture of how influential and sophisticated investors really think and make decisions. Panelists included Andrew Alford of Goldman Sachs Asset Management, Michael Corasaniti of Pequot Capital, Steve Galbraith of Maverick Capital, Mitch Julis of Canyon Capital, Andrew Lacey of Lazard Asset Management, Michael Mauboussin of Legg Mason, Henry McVey of Morgan Stanley, and Stephen Penman of Columbia University. Trevor Harris of Morgan Stanley moderated the discussion.

The psychological research is clear: bad events affect us much more powerfully than good events. So it stands to reason that burdens weigh more heavily upon our decision processes than do benefits. Negotiations that center around burdens can pose psychological hazards for negotiators — contentiousness, clouded judgment, suspicion, and a diminished understanding of their own interests. The result? A smaller pie of resources, for one thing. Here is a guide to help you avert the dangers.

Valuation models are useful tools, but they need to be handled with care. When taking the form of mathematical formulas, they can easily be made to convey a false sense of precision. In particular, selective choice of long-term growth rates and discount rates can be used to justify almost any desired valuation.

The authors argue that high self-monitors may be more sensitive to the status implications of social exchange and more effective in managing their exchange relations to elicit conferrals of status than low self-monitors. In a series of studies, they found that high self-monitors were more accurate in perceiving the status dynamics involved both in a set of fictitious exchange relations and in real relationships involving other members of their social group.

Sooner or later, every negotiator faces threats at the bargaining table. How should you respond when the other side threatens to walk away, file a lawsuit, or damage your reputation?

Idea generation (ideation) is critical to the design and marketing of new products, to marketing strategy, and to the creation of effective advertising copy. However, there has been relatively little formal research on the underlying incentives with which to encourage participants to focus their energies on relevant and novel ideas. Several problems have been identified with traditional ideation methods. For example, participants often free ride on other participants' efforts because rewards are typically based on the group-level output of ideation sessions.

The 1993 Japanese financial system reform allowed banks to enter the underwriting market for corporate bonds through bank-owned security subsidiaries. This paper examines empirically whether underwriting commissions and yield spreads on corporate straight bonds issued domestically fell as a result of this bank entry. The empirical results show that bank entry significantly lowers both underwriting commissions and yield spreads. Commissions charged by banks are significantly lower than those charged by investment houses.

We propose a novel economic mechanism that generates stock return predictability in both the time series and the cross-section. Investors' income has two sources, wages and dividends that grow stochastically over time. As a consequence the fraction of total income produced by wages fluctuates depending on economic conditions. We show that the risk premium that investors require to hold stocks varies with these fluctuations. A regression of stock returns on lagged values of the labor income to consumption ratio produces statistically significant coefficients and large adjusted R 2s.