Decision Making & Negotiations

We use a very accurate panel of all individual spending, income, balances, and credit limits from a financial aggregation app and document significant payday responses of spending to the arrival of both regular and irregular income. These payday responses are clean, robust, and homogeneous for all income and spending categories throughout the income distribution. Spending responses to income are typically explained by households' capital structures: households that hold little or no liquid wealth have to consume hand-to-mouth.

Firms often finance their inventory through debt and subsequently sell it to generate profits and service the debt. Pricing of products is consequently driven by both inventory and debt servicing considerations. In the present paper, we analyze how debt distorts dynamic pricing decisions and reduces generated sales revenues. We show that debt induces sellers to always price higher than the revenue-maximizing price.

We examine the Cochrane and Piazzesi (2005, 2008) model in several out-of-sample analyzes. The model's one-factor forecasting structure characterizes the term structures of additional currencies in samples ending in 2003. In post-2003 data one-factor structures again characterize each currency's term structure, but we reject equality of the coefficients across the two samples. We derive some implications of the model for the predictability of cross-currency investments, but we find little support for these predictions in either pre-2004 or post-2003 data.

People can be surprisingly insensitive to quantities in valuation judgments—a phenomenon called scope insensitivity, which is generally attributed to the operation of affective processes in judgment. Building on research showing that affect is inherently a decision-making system of the present, we propose that scope insensitivity is more likely to be observed in decisions that are psychologically proximate to the immediate self.

We develop a theory of banking that explains why banks started out as commodities warehouses. We show that warehouses become banks because their superior storage technology allows them to enforce the repayment of loans most effectively. Further, interbank markets emerge endogenously to support this enforcement mechanism. Even though warehouses store deposits of real goods, they make loans by writing new "fake" warehouse receipts, rather than by taking deposits out of storage.

Using the staggered adoption of universal demand (UD) laws in the United States, we study the effect of shareholder litigation risk on corporate disclosure. We find that disclosure significantly increases after UD laws make it more difficult to file derivative lawsuits. Specifically, firms issue more earnings forecasts and voluntary 8-K filings, and increase the length of management discussion and analysis (MD&A) in their 10-K filings. We further assess the direct and indirect channels through which UD laws affect firms' disclosure policies.

We find that voters who associate themselves with the "winning team" in election, i.e., Leave voters in the 2016 UK Brexit vote and Trump voters in 2016 US presidential election, substantially increase their expectations for the stock market, but change their expectations of their household economic wellbeing only modestly. Respondents who associate themselves with the "losing team" are more varied in their responses, but the overall impact of the election outcome on this group is more muted.

Expectancies play an important and understudied role in influencing a negotiator's decision to be deceptive. Studies 1a–1e investigated the sources of negotiators' expectancies, finding evidence of projection and pessimism; negotiators consistently overestimated the prevalence of people who share their views on deception and assumed a sizable share of others embrace deceptive tactics. This phenomenon generalized beyond American samples to Chinese students (Study 1d) and Turkish adults (Study 1e).

The paper draws on Mohanty and Sundaresan (2018) to explore the effects of bankruptcy laws on the ex ante incentive for firms to hedge FX exposures. We use a simple model in which the bankruptcy code may result in deadweight losses, and may allow equity holders a share of residual value of the firm's assets in the bankruptcy proceedings. The paper predicts that, while value-maximising firms promise to hedge a higher fraction of the value of their FX exposure when the debt is issued, they may renege subsequently and take on some FX exposures at the expense of foreign creditors.