Decision Making & Negotiations

We investigate the welfare implications of operating alternative market structures known as electronic crossing networks or "dark pools" alongside traditional "lit" markets. We study equilibria of a market where intrinsic traders and speculators, endowed with heterogeneous fine-grained information, endogenously choose between dark and lit venues. We establish that while the dark pool attracts relatively uninformed investors, the orders therein experience adverse selection.

The authors explore how firms can enhance consumer performance in online idea generation platforms. Most, if not all, online idea generation platforms offer all consumers identical tasks in which (1) participants are granted access to ideas from other participants and (2) ideas are classified into categories, but consumers can navigate freely across idea categories. The former is linked to stimulus ideas, and the latter may be viewed as a first step toward problem decomposition.

We test the empirical validity of a claim that has been playing a central role in debates on corporate governance — the claim that interventions by activist hedge funds have a detrimental effect on the long-term interests of companies and their shareholders. We subject this claim to a comprehensive empirical investigation, examining a long five-year window following activist interventions, and we find that the claim is not supported by the data.

We develop and test hypotheses regarding the role of social contagion in customer adoption of new sales channels. We examine two aspects of social contagion (local contagion and homophily) and two channels (Internet and bricks-and-mortar store). Drawing on diffusion theory, we propose a conceptual framework that identifies the factors associated with new channel adoption.

Fraud occurs when there is an incentive and the opportunity to commit fraud and the fraudster can rationalize his behavior. Academic literature in financial economics has investigated incentives and opportunities to commit fraud but has largely ignored the fraudsters' ability to rationalize fraud. We address this gap by positing that economic actors, whose earnings are restricted by regulations, cheat more and rationalize such behavior as an effort to get "out of the hole" that regulations have forced them into.

We model an electronic limit order book as a multi-class queueing system under fluid dynamics, and formulate and solve a problem of limit and market order placement to optimally buy a block of shares over a short, predetermined time horizon. Using the structure of the optimal execution policy, we identify microstructure variables that affect trading costs over short time horizons and propose a resulting microstructure-based model of market impact costs.

This study takes advantage of a unique episode in which the SEC distributed securities filings to a small group of investors ahead of their public releases. The random delay time provides a rare natural experiment for examining how markets process new private information. It takes minutes — not seconds — for informed traders to incorporate fundamental information into stock prices. The early-informed convey more information into stock prices when the delay before public release is longer.

Ad Exchanges are emerging Internet markets where advertisers may purchase display ad placements, in real-time and based on specific viewer information, directly from publishers via a simple auction mechanism. Advertisers join these markets with a pre-specified budget and participate in multiple second-price auctions over the length of a campaign. This paper studies the competitive landscape that arises in Ad Exchanges and the implications for publishers' decisions.

It is becoming increasingly easier for researchers and practitioners to collect eye tracking data during online preference measurement tasks. We develop a dynamic discrete choice model of information search and choice under bounded rationality, that we calibrate using a combination of eye-tracking and choice data. Our model extends the directed cognition model of Gabaix et al. (2006) by capturing fatigue, proximity effects, and imperfect memory encoding and by estimating individual-level parameters and partworths within a likelihood-based, hierarchical Bayesian framework.