Decision Making & Negotiations

Despite the obvious importance of understanding how business cycle fluctuations affect both individual companies and whole industries, not much marketing research focuses on the subject. Often, one only has aggregate information on the state of the national economy, even though cyclical contractions and expansions generally do not have an equal impact on every industry, nor on all firms in any given industry.

Previous studies on international marketing have typically asked the question: "how is the demand characterized across countries?" Such analysis is then used to provide guidelines for firms to enter new markets and/or to allocate marketing resources across countries.

We present a simple model where a firm will commit to a strictly positive hurdle rate on investment proposals by managers even though the two parties are symmetrically informed about the investments' profitability. Facing a positive hurdle rate, a manager who derives partial benefits from the investment profits will have more incentive to collect information about the projects. The optimal hurdle rate trades off the benefit of more information with the cost of foregoing ex post positive Net Present Value (NPV) projects.

This paper analyzes the role of jumps in continuous-time short rate models. I first develop a test to detect jump-induced misspecification and, using Treasury bill rates, find evidence for the presence of jumps. Second, I specify and estimate a nonparametric jump-diffusion model. Results indicate that jumps play an important statistical role. Estimates of jump times and sizes indicate that unexpected news about the macroeconomy generates the jumps. Finally, I investigate the pricing implications of jumps.

We propose a dynamic equilibrium model of asset prices and trading volume when agents face fixed transactions costs. We show that even small fixed costs can give rise to large "no-trade" regions for each agent's optimal trading policy. The inability to trade more frequently reduces the agents' asset demand and in equilibrium gives rise to a significant illiquidity discount in asset prices.

One role of accounting is to discipline softer (more manipulable) sources of information. We use a principal-agent model of hidden actions and hidden information to study this role. In our model, there is both a verifiable signal (a publicly observed output) and an unverifiable signal (a productivity parameter privately observed by the agent). In a one-period setting, the optimal contract does not make use of the agent's report on the private signal. However, when the output is tracked over two periods, the agent's communication can be valuable.

Intertemporal aggregation results in a summarization of information and a natural delay in the release of information. We study a principal-agent model and show that intertemporal aggregation can be an optimal feature of a performance evaluation system. We then highlight subtleties associated with valuing additional information as the level of aggregation of existing information is varied.

Recent field and laboratory studies have shown that, although extensive choice is initially appealing, it may hinder motivation to buy and decrease subsequent satisfaction with purchased goods. The following investigation examines whether these findings generalize to employees who are making decisions about whether to invest in 401(k) retirement savings plans.

Companies are collecting increasing amounts of information about their customers. This effort is based on the assumption that more information is better and that this information can be leveraged to predict customers' behavior in a variety of situations and product categories. For example, information about a customer's purchase behavior in one category can be helpful in predicting his potential behavior in a related category, which in turn could help a firm in its cross-selling efforts.