Decision Making & Negotiations

This article critically examines McGraw and Tetlock's (2005) notion of relational framing and offers directions for future development of the conceptual model. I begin by discussing the inherent limitations of scenario studies and show how the emergence of attribution analysis in real interpersonal interactions may qualify the results obtained in these studies. I then discuss the norm consistency and social identity maintenance mechanisms proposed in the article and advance several alternative mediators of the phenomenon, including affect and anticipated interaction.

Bayesian learning implies decreasing weights on prior beliefs and increasing weights on the accuracy of the analyst?s past forecast record, as the number of forecast errors comprising her forecast record (its length) increases. Consistent with this model of investor learning, empirical tests show that investors? reactions to forecast news are increasing in the product of the accuracy and length of analysts? forecast records. Moreover, the Bayesian learning predicted by our model is more descriptive of investor reactions than is a static model which predicts that investors?

Using both a linear regression method and a probability-based method, we find that on average analysts place larger than efficient weights on (i.e., they over-weight) their private information when they forecast corporate earnings. We also find that analysts over-weight more when issuing forecasts more favorable than the consensus, and over-weight less, and may even under-weight, private information when issuing forecasts less favorable than the consensus.

Adaptive metric utility balance is at the heart of one of the most widely used and studied methods for conjoint analysis. We use formal models, simulations, and empirical data to suggest that adaptive metric utility balance leads to partworth estimates that are relatively biased—smaller partworths are upwardly biased relative to larger partworths. Such relative biases could lead to erroneous managerial decisions.

Combining survey responses and trading records of clients of a German retail broker, this paper examines some of the causes for the apparent failure to buy and hold a well-diversified portfolio. The subjective investor attributes gleaned from the survey help explain the variation in actual portfolio and trading choices. Self-reported risk aversion is the single most important determinant of both portfolio diversification and turnover; other things equal, investors who report being more risk tolerant hold less diversified portfolios and trade more aggressively.

A liquidity trader wishes to trade a ?xed number of shares within a certain time horizon and to minimize the mean and variance of the costs of trading. Explicit formulas for the optimal trading strategies show that risk-averse liquidity traders reduce their order sizes over time and execute a higher fraction of their total trading volume in early periods when price volatility or liquidity increases. In the presence of transaction fees, numerical simulations suggest that traders want to trade more frequently when price volatility goes up or liquidity declines.

In this chapter, I'll lay out the principal facts and controversies surrounding international flows of capital and their attendant risks. I'll review the perspectives of economic historians and economists on the implications of capital mobility, both during the first wave of globalization (prior to World War I) and during the recent wave (since 1980). I'll emphasize changes over time - especially political changes - that have weakened the case for unfettered capital mobility and have made capital flows more controversial among economists today than in the past.

This study examines the factors that influence the type and amount of trust managers have in members of their professional networks. Results indicate that affect-based trust is high in alters who are densely embedded in ego's network, provide social support, and demographically similar to ego. Cognition-based trust is higher in those with whom ego engages in instrumental exchange, and is unaffected by embeddedness or demographics.

This paper is concerned with the issue of how to balance bailouts (or "lending into arrears") with debt reductions (or "private sector involvement") in the resolution of sovereign debt crises. It provides a review of recent proposals to regulate sovereign debt renegotiations under a Sovereign Debt Restructuring Mechanism (SDRM). In addition to defending a sovereign bankruptcy proposal we have put forward in recent work, this article proposes a major reorientation of the IMF's role in sovereign debt crises.