Decision Making & Negotiations

I investigate the relationship between liquidity and market efficiency using data from short-horizon binary outcome securities listed on the TradeSports exchange. I find that liquidity does not reduce—and sometimes increases—deviations of prices from financial and sporting event outcomes. One explanation is that limit order traders are naïve about other traders' knowledge and unwittingly bet against them, which can slow the response of prices to information.

We consider a trader who aims to liquidate a large position in the presence of an arbitrageur who hopes to profit from the trader's activity. The arbitrageur is uncertain about the trader's position and learns from observed price fluctuations. This is a dynamic game with asymmetric information. We present an algorithm for computing perfect Bayesian equilibrium behavior and conduct numerical experiments. Our results demonstrate that the trader's strategy differs significantly from one that would be optimal in the absence of the arbitrageur.

We develop a model of customer channel migration and apply it to a retailer that markets over the Web and through catalogs. The model (1) identifies the key phenomena required to analyze customer migration, (2) shows how these phenomena can be modeled, and (3) develops an approach for estimating the model. The methodology is unique in its ability to accommodate heterogeneous customer responses to a large number of distinct marketing communications in a dynamic context.

We propose a framework for designing adaptive choice-based conjoint questionnaires that are robust to response error. It is developed based on a combination of experimental design and statistical learning theory principles. We implement and test a specific case of this framework using Regularization Networks. We also formalize within this framework the polyhedral methods recently proposed in marketing.

We examine racial preferences in dating. We employ a Speed Dating experiment that allows us to directly observe individual decisions and thus infer whose preferences lead to racial segregation in romantic relationships. Females exhibit stronger racial preferences than males. The richness of our data further allows us to identify many determinants of same-race preferences. Subjects' backgrounds, including the racial composition of the ZIP code where a subject grew up and the prevailing racial attitudes in a subject's state or country of origin, strongly influence same-race preferences.

The separation of ownership and control allows controlling shareholders to pursue private benefits. We develop an analytically tractable dynamic stochastic general equilibrium model to study asset pricing and welfare implications of imperfect investor protection. Consistent with empirical evidence, the model predicts that countries with weaker investor protection have more incentives to overinvest, lower Tobin's q, higher return volatility, larger risk premia, and higher interest rate.

A German broker's clients place similar speculative trades and therefore tend to be on the same side of the market in a given stock during a given day, week, month, and quarter. Aggregate liquidity effects, short sale constraints, the systematic execution of limit orders (coordinated through price movements) or the correlated trading of other investors who pick off retail limit orders, do not fully explain why retail investors trade similarly. Correlated market orders lead returns, presumably due to persistent speculative price pressure.

Individuals engage in status self-enhancement when they form an overly positive perception of their status in a group. We argue that status self-enhancement incurs social costs and, therefore, most individuals perceive their status accurately. In contrast, theories of positive illusions suggest status self-enhancement is beneficial for the individual and that most individuals overestimate their status. We found supportive evidence for our hypotheses in a social relations analysis of laboratory groups, an experiment that manipulated status self-enhancement, and a study of real-world groups.

In the intervening years since publication of the chapter "Affect and Consumer Behavior" (Cohen & Areni, 1991) in the Handbook of Consumer Behavior (Kassarjian & Robertson, 1991), research in consumer behavior dealing with affect has exploded, making it one of the field's central research topics. Within psychology more generally, Schimmack and Crites (2005) located 923 references to affect between 1960 and 1980 and 4,170 between 1980 and 2000.