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.
Several online firms, including Yahoo!, Amazon.com, and Movie Critic, recommend documents and products to consumers. Typically, the recommendations are based on content and/or collaborative filtering methods.
Several online firms, including Yahoo!, Amazon.com, and Movie Critic, recommend documents and products to consumers. Typically, the recommendations are based on content and/or collaborative filtering methods.
We demonstrate that counterfactuals prime a mental simulation mind-set in which relevant but potentially converse alternatives are considered and that this mind-set activation has behavioral consequences. This mind-set is closely related to the simulation heuristic (Kahneman & Tversky, 1982). Participants primed with a counterfactual were more likely to solve the Duncker candle problem (Experiment 1), suggesting that they noticed an alternative function for one of the objects, an awareness that is critical to solving the problem.
This article presents an empirical model of housing supply derived from urban growth theory. This approach describes new housing construction as a function of changes in house prices and costs rather than as a function of the levels of those variables, which previous studies have used. Empirical tests support this specification over the leading alternative models. Our estimates show that a 10% rise in real prices leads to an 0.8% increase in the housing stock, which is accomplished by a temporary 60% increase in the annual number of starts, spread over four quarters.
A study examines the sale of a product across channels. Using data from 35 movies, exponential sales curves are estimated for both theater attendance and video rentals. How knowledge of the sales parameters in the first channel helps predict sales in the subsequent channel is demonstrated.
This paper proposes and anlyzes discrete-time approximations to a class of diffusions, with an emphasis on preserving certain important features of the continuous-time processes in the approximations. We start with multivariate diffusions having three features in particular: they are martingales, each of their components evolves within the unit interval, and the components are almost surely ordered.
We investigate a simple adaptive approach to optimizing seat protection levels in airline revenue management systems. The approach uses only historical observations of the relative frequencies of certain seat-filling events to guide direct adjustments of the seat protection levels in accordance with the optimality conditions of Brumelle and McGill (1993). Stochastic approximation theory is used to prove the convergence of this adaptive algorithm to the optimal protection levels.
In this article, the authors focus on impacts of tax rates and, in particular, tax progressivity on the decision to become an 'entrepreneur.' While a proportional tax with a full loss offset will not affect the entry decision for a risk-neutral individual, a progressive schedule with imperfect loss offsets can discourage entry. The authors find substantial evidence for this effect on entrepreneurship using variation in tax schedules faced by households in the Panel Study on Income Dynamics (PSID) over the period from 1979 to 1992.
It appears that volatility in equity markets is asymmetric: returns and conditional volatility are negatively correlated. We provide a unified framework to simultaneously investigate asymmetric volatility at the firm and the market level and to examine two potential explanations of the asymmetry: leverage effects and volatility feedback. Our empirical application uses the market portfolio and portfolios with different leverage constructed from Nikkei 225 stocks. We reject the pure leverage model of Christie (1982) and find support for a volatility feedback story.
Previous theories of financial market rationing focussed on a single market, either the credit or the equity market. An interesting question is whether credit and equity rationing are mutually compatible, and how they interact. We consider a model with two-dimensional asymmetric information, where entrepreneurs have private information about both the expected returns and the risk of their projects. We show that credit and equity rationing may occur individually or simultaneously.
We propose a cross-sectional time-series model to assess the impact of market liberalizations in emerging equity markets on the cost of capital, volatility, beta, and correlation with world market returns. Liberalizations are defined by regulatory changes, the introduction of depositary receipts and country funds, and structural breaks in equity capital flows to the emerging markets. We control for other economic events that might confound the impact of foreign speculators on local equity markets.
Using 3 experiments, the authors explored the role of perspective-taking in debiasing social thought. In the 1st 2 experiments, perspective-taking was contrasted with stereotype suppression as a possible strategy for achieving stereotype control. In Experiment 1, perspective-taking decreased stereotypic biases on both a conscious and a nonconscious task.
In a dynamic model of moral hazard, competition can undermine prudent bank behavior. While capital-requirement regulation can induce prudent behavior, the policy yields Pareto-inefficient outcomes. Capital requirements reduce gambling incentives by putting bank equity at risk. However, they also have a perverse effect of harming banks' franchise values, thus encouraging gambling. Pareto-efficient outcomes can be achieved by adding deposit-rate controls as a regulatory instrument, since they facilitate prudent investment by increasing franchise values.
In four experiments we examine the ability of simple concurrent disclosures to correct invalid inferences about brand quality based on advertising claims. We ensure that the disclosure is always encoded, yet we find that it is utilized to correct invalid inferences only under high-capacity conditions. Across the experiments, cognitive capacity is operationalized as opportunity to process (time), ability (explicitness of disclosure), and motivation (accuracy incentive).
The authors propose a new methodology called the "coupled-hazard approach" to study the global diffusion of technological innovations. Beyond its ability to describe discontinuous diffusion patterns, the method explicitly recognizes the conceptual difference between the timing of a country's introduction of the new technology (the so-called implementation stage; Rogers 1983) and the timing of the innovation's full adoption in the country (the confirmation stage).
The authors study global adoption processes where the units of observation are countries, which sequentially adopt a particular technology. The authors’ goal is to provide a better understanding of how exogenous and endogenous country characteristics affect this diffusion process. They develop a general model of global adoption processes, which allows researchers to test extant theories of cross-country adoption, and illustrate the approach using data from the cellular telephone industry for 184 countries.
This paper empirically compares a variety of firm-value-based models of contingent claims. We formulate a general model which nests versions of the models introduced by Merton, 1974; Leland, 1994 and Anderson and Sundaresan, 1996, and Mella-Barral and Perraudin (1997). We estimate these using aggregate time series data for the US corporate bond market, monthly, from August 1970 through December 1996. We find that models fit reasonably well, indicating that variations of leverage and asset volatility account for much of the time-series variations of observed corporate yields.
In this paper, we consider American option contracts when the underlying asset has stochastic dividends and stochastic volatility. We provide a full discussion of the theoretical foundations of American option valuation and exercise boundaries. We show how they depend on the various sources of uncertainty which drive dividend rates and volatility, and derive equilibrium asset prices, derivative prices and optimal exercise boundaries in a general equilibrium model.
An important recent development in the pricing of interest rate derivatives is the emergence of models that incorporate lognormal volatilities for forward Libor or forward swap rates while keeping interest rates stable. These market models have three attractive features: they preclude arbitrage among bonds, they keep rates positive, and, most distinctively, they price caps or swaptions according to Black's formula, thus allowing automatic calibration to market data. But these features of continuous-time formulations are easily lost when the models are discretized for simulation.
This paper reviews briefly the arguments for capital market liberalization, and identifies their theoretical and empirical weaknesses. This provides the foundations for the argument for intervention in short-term capital flows. The paper concludes with a brief discussion of the various ways in which such interventions may be implemented.
When consumers' willingness-to-pay increases by a uniform amount, the change in the resulting monopoly price is generally indeterminate. Our analysis identifies sufficient conditions on the underlying demand curve which predict both the sign and the magnitude of the resulting price change.
Three experiments tested whether counterfactual events can serve as primes. The evidence supports the hypothesis that counterfactuals prime a mental simulation mind-set that leads people to consider alternatives. Exposure to counterfactual scenarios affected person perception judgments in a later, unrelated task and this effect was distinct from semantic construct priming. Moreover, these effects were dependent on the availability of salient possible outcomes in the person perception task.
The valuation of debt and equity, reorganization boundaries, and firm's optimal dividend policies are studied in a framework where we model strategic interactions between debt holders and equity holders in a game-theoretic setting which can accommodate varying bargaining powers to the two claimants. Two formulations of reorganization are presented: debt-equity swaps and strategic debt service resulting from negotiated debt service reductions. We study the effects of bond covenants on payout policies and distinguish liquidity-induced defaults from strategic defaults.
The author argues that the Washington consensus is too narrow in its objectives - in its focus on GDP - and in what it sees as the instruments of development, the improvement of resource allocation, through trade liberalization, privatization and stabilization, that development needs to be seen as a transformation of society, a change in mindsets, and that workers and workers' institutions have to be at the center of the development process.
Technical analysis, also known as "charting," has been a part of financial practice for many decades, but this discipline has not received the same level of academic scrutiny and acceptance as more traditional approaches such as fundamental analysis. One of the main obstacles is the highly subjective nature of technical analysis — the presence of geometric shapes in historical price charts is often in the eyes of the beholder.
Behavioral research on negotiation in recent years has been dominated by the decision-making research paradigm, which accords a relatively narrow role to emotions. Decision-making researchers have considered emotions primarily in terms of how an individual’s positive or negative affect impacts, and usually impedes, his or her information processing. Drawing on recent advances in psychology and other fields, we propose an alternative perspective that highlights more social and more functional aspects of emotion in negotiation.
This paper studies implementation in a principal-agent model of adverse selection. We explore ways in which the additional structure of principal-agent models (compared to general implementation models) simplifies the implementation problem. We develop a connection between the single crossing property and monotonicity conditions which are necessary for Nash and Bayesian Nash implementation. We also construct simple implementing mechanisms that rely on the single crossing property and on assumptions about the outcome set frequently made in the principal-agent literature.
In this study, 4 experiments demonstrated that priming effects depend on the context-appropriate meaning of the prime words. Most studies of semantic construct activation have presented prime words in contexts where the meaning of each word was invariant. The authors used words in contexts that supported either literal or figurative meanings, and found that only the context-appropriate meanings had subsequent priming effects on person-perception judgments.
This paper compares the performance of standard-cost with negotiated transfer pricing under asymmetric information. Negotiated transfer pricing generally achieves higher expected contribution margins, as this method tends to be more efficient in aggregating private information into a single transfer price. Standard-cost transfer pricing confers more bargaining power to the supplier and therefore generates better incentives for this division to undertake specific investments. The opposite holds for buyer investments.
We review progress in research attempting to model the influence of culture on judgments of justice. We review research on people’s reactions to resource allocation outcomes (the psychology of distributive justice), as well as on people’s reactions to the processes through which authorities make decisions (the psychology of procedural justice). We describe the progress from early work in which culture was equated with country differences to later work which focused on dimensions of values (e.g.
Supply chain management is the most recently proposed set of tools to replace the total quality paradigm, which itself replaced innumerable previous sets of principles and managerial tools. The fundamentals are unchanged; the principles of managing for quality are quite robust and are easily adaptable to the task of supply chain management. The most obvious element that is new about supply chain management is the unprecedented sophistication of its information technology.
This paper describes novel market-based technologies that uniquely establish quantifiable and adjustable limits on the power of attackers, enable verifiable accountability for malicious attacks, and admit systematic and uniform monitoring and detection of attacks. These technologies, incorporated in the MarketNet system, establish a financial economy to regulate the trade and use of access rights in information systems. Resources are instrumented to use currency for access control and monitoring, establishing accountability in their use.
The authors present a new approach to culture and cognition, which focuses on the dynamics through which specific pieces of cultural knowledge (implicit theories) become operative in guiding the construction of meaning from a stimulus. Whether a construct comes to the fore in a perceiver's mind depends on the extent to which the construct is highly accessible (because of recent exposure).
This century has been marked by two great economic experiments. The outcome of the first set, the socialist experiment that began, in its more extreme form, in the Soviet Union in 1917, is now clear. The second experiment is the movement back from a socialist economy to a market economy. Ten years after the beginning of the transition in Eastern Europe and the Former Soviet Union: How do we assess what has happened? What are the lessons to be learned?
Unlike European-type derivative securities, there are no simple analytic valuation formulas for finite-lived American options, even when the underlying asset price has constant volatility. The early exercise feature considerably complicates the valuation of American contracts. The strategy taken in this paper is to rely on nonparametric statistical methods using market data to estimate the call prices and the exercise boundaries. A comparison is made with parametric constant volatility model-based prices and exercise boundaries.
Consider a queue with a stochastic fluid input process modeled as fractional Brownian motion (fBM).When the queue is stable, we prove that the maximum of the workload process observed over an interval of length t grows like y(log t)1/(2-2H), where H > 1/2 is the self-similarity index (also known as the Hurst parameter) that characterizes the fBM and can be explicitly computed.
A model of molecular diversity is presented. The model, termed "Quantized Surface Complementarity Diversity" (QSCD), defines molecular diversity by measuring molecular complementarity to a fully enumerated set of theoretical target surfaces. Molecular diversity space is defined as the molecular complement to this set of enumerated surfaces. Using a set of known test compounds, the model is shown to be biologically relevant, consistently scoring known actives as similar.
We argue that a way culture influences decisions is through the reasons that individuals recruit when required to explain their choices. Specifically, we propose that cultures endow individuals with different rules or principles that provide guidance for making decisions, and a need to provide reasons activates such cultural knowledge. This proposition, representing a dynamic rather than dispositional view of cultural influence, is investigated in studies of consumer decisions that involve a trade-off between diverging attributes, such as low price and high quality.
We analyze a closely held corporation characterized by the absence of a resale market for its shares. We show that the founder of the firm can optimally choose an ownership structure with several large shareholders to force them to form coalitions to obtain control. By grouping member cash flows, a coalition internalizes to a larger extent the consequences of its actions and hence takes more efficient actions than would any of its individual members. The model has implications for the optimal bundling of cash flow and voting rights, and for the optimal number and size of shareholders.
We investigate how individuals learn from imagined might-have-been scenarios. We hypothesize that individuals are more likely to learn when they have responded to an event with upward-directed, self-focused counterfactual thoughts, and, additionally, that this learning process is inhibited by accountability to organizational superiors. Support for these hypotheses was obtained in two studies that assessed learning by aviation pilots from the experience of near accidents.
The research in this article examined the consequences of a failed attempt to reduce dissonance through a self-affirmation strategy. It was hypothesized that disconfirming participants' affirmations would reinstate psychological discomfort and dissonance motivation. In Experiment 1, high-dissonance participants who affirmed on a self-relevant value scale and received disconforming feedback about their affirmations expressed greater psychological discomfort (Elliot & Devine, 1994) than either affirmation-only participants or low-dissonance/affirmation disconformed participants.
Rapid comprehensive change in the physical pattern of a city is a minor revolution — as is the transformation of 42nd Street and Times Square. Two decades ago the agenda for change posed two big questions: Is it possible for cities to reshape what the market is likely to deliver in an area? Is large-scale redevelopment even a plausible political objective, especially when aggressive actions such as condemnation are deemed a necessary part of the strategy?
The present research is motivated by an interest in why organizational decision makers so often respond to accidents with remedy plans that focus narrowly on correcting human error rather than more environment-focused plans or more encompassing plans. We investigated the role of counterfactual thinking in the decision-making tendency toward human-focused plans. Our experiments indicated that even in a domain where human-focused remedies were not otherwise appealing, many participants decided on human-focused remedies after they had generated an “if only” conjecture about the accident.
We study the economic consequences of alternative hedge accounting rules in terms of managerial hedging decisions and wealth effects for shareholders. The rules we consider include the "fair-value" and "cash-flow" hedge accounting methods prescribed by the recent SFAS No. 133. We illustrate that the accounting method used influences the manager's hedge decision. We show that under no-hedge accounting, the hedge choice is different from the optimal economic hedge the firm would make under symmetric and public information.
Prior evaluations are frequently challenged and need to be revised. We propose that an important determinant of such revisions is the degree to which the challenge provides an opportunity to compare the target against a competitor. Whenever a challenge offers an opportunity, the information contained in the challene will carry a disproportionate weight in the revised judgments. We call this proposition the comparison-revision hypothesis.
Low inventory, a crucial part of just-in-time (JIT) manufacturing systems, enjoys increasing application worldwide, yet the behavioral effects of such systems remain largely unexplored. Operations research (OR) models of low-inventory systems typically use a simplifying assumption that processing times of individual workers are independent random variables. This leads to predictions that low-inventory systems will exhibit production interruptions leading to lower productivity. Yet empirical results suggest that low-inventory systems do not exhibit the predicted productivity losses.