Columbia Business School Research

Data from downtown Boston in the 1990s show that loss aversion determines seller behavior in the housing market. Condominium owners subject to nominal losses 1) set higher asking prices of 25-35 percent of the difference between the property's expected selling price and their original purchase price; 2) attain higher selling prices of 3-18 percent of that difference; and 3) exhibit a much lower sale hazard than other investors, but hold for both.

The results of an analysis of sales and price data from a speciality retailer of women's apparel are reported. The data set contains 184 styles sold during the Spring 1993 season. A demand model similar to those in the existing literature is hypothesised, fit to the data, and then analysed to obtain estimates of revenues under various pricing policies. Both full information and adaptive policies are considered. The optimal prices suggested by the models are compared with those of the study company and the revenues generated by various policies are estimated.

This paper studies how to assign monitors to productive agents in order to generate signals about the agents' performance that are most useful from a contracting perspective. We show that if signals generated by the same monitor are negatively (positively) correlated, then the optimal monitoring assignment will be focused (dispersed). This holds because dispersed monitoring allows the firm to better utilize relative performance evaluation.

We consider the problem of managing inventories and dynamically adjusting retailer prices in distribution systems with geographically dispersed retailers. More specifically, we analyze the following single item, periodic review model. The distribution of demand in each period, at a given retailer, depends on the item's price according to a stochastic demand function. These stochastic demand functions may vary by retailer and by period. The replenishment process consists of two phases: In some or all periods, a distribution center may place an order with an outside supplier.

The authors propose that cultural frame shifting — shifting between two culturally based interpretative lenses in response to cultural cues — is moderated by perceived compatibility (vs. opposition) between the two cultural orientations, or bicultural identity integration (BII).

The advances in the economics of the public sector during the past quarter century have been as pronounced as in any field within economics. Public finance has become a rigorous branch of applied microeconomics, incorporating the best thinking and most advanced tools of both theoretical economics and econometrics.

We analyze a dynamic auction, in which a seller with C units to sell faces a sequence of buyers separated into T time periods. Each group of buyers has independent, private values for a single unit. Buyers compete directly against each other within a period, as in a traditional auction, and indirectly with buyers in other periods through the opportunity cost of capacity assessed by the seller. The number of buyers in each period, as well as the individual buyers' valuations, are random.

This paper investigates the relationship between economic and social development. Contrary to the view of those who believe in the existence of a tradeoff between democracy and growth, the paper contends that consensus-building, open dialog and the promotion of an active civil society are key ingredients to long-term sustainable development. Development is a participatory process. "Best practices" or reforms that are imposed on a country through conditionality may very well fail to produce lasting change.

This article tests 2 competing explanations for the truth effect, the finding that repeated statements are believed more than new statements. Previous research has put forth 2 explanations for this effect, subjective familiarity and perceived source variability. The subjective familiarity explanation holds that repeated statements feel more familiar and are therefore believed more than new statements. This explanation has received strong support in the literature.

Supply chain management is a complex process that requires a high-level dedicated governing body or steering committee to meet the various needs of the supply chain's multiple customers. Because a supply chain system is complex and nonlinear, there may be multiple reasons for poor performance. Supply chains can fall victim to feedback loops that reinforce negative actions and behaviors. Improving a supply chain requires understanding functional deficiencies and, also, how such deficiencies interact with one another to degrade overall performance.

Much has been learned about emerging markets finance over the past 20 years. These markets have attracted a unique interdisciplinary interest that bridges both investment and corporate finance with international economics, development economics, law, demographics, and political science. Our paper focuses on the research areas that are ripe for exploration.

A planner and agent in a permanent-income economy cannot observe part of the state, regard their model as an approximation, and value decision rules that are robust across a set of models. They use robust decision theory to choose allocations. Equilibrium prices reflect the preference for robustness and so embody a “market price of Knightian uncertainty.” We compute market prices of risk and compare them with a model that assumes that the state is fully observed. We use detection error probabilities to constrain a single parameter that governs the taste for robustness.

We investigate the security of quantum key distribution with entangled photons, focusing on the two-photon variation of the Bennett-Brassard 1984 (BB84) protocol proposed in 1992 by Bennett, Brasard, and Mermin (BBM92). We present a proof of security which applies to realistic sources, and to untrustable sources which can be placed outside the labs of the two receivers. The proof is restricted to individual eavesdropping attacks, and assumes that the detection apparatus is trustable.

Verhandlungen spielen eine entscheidende Rolle in all jenen Lebensbereichen, die durch Interessenskonflikte gegenzeichnet sind. In Verhandlungssituationen sind relevante Informationen typischer Weise in unzureichendem Maße vorhanden, so dass Verhandlungen meist unter Unsicherheit geführt werden. Folglich sollten Prozesse der Verhandlungsführung von denjenigen psychologischen Mechanismen bestimmt sein, die gemeinhin menschliches Urteilen und Entscheiden unter Unsicherheit charakterisieren.

The author studies the pricing of information with private value (e.g., management consulting, legal advice, medical diagnosis). Anecdotal evidence shows that in some of these markets, competing information sellers split the business to sell only first or second opinions to their customers. The author explains this pricing practice by showing that second-opinion markets are a result of temporal differentiation.

In this article, the authors explore the role of individuals' counterfactual thoughts in determining their satisfaction with negotiated outcomes. When negotiators' first offers are immediately accepted, negotiators are more likely to generate counterfactual thoughts about how they could have done better and therefore are less likely to be satisfied with the agreement than are negotiators whose offers are not accepted immediately.

We study the interrelationship between capital flows, returns, dividend yields and world interest rates in 20 emerging markets. We estimate a vector autoregression with these variables to measure the degree to which lower interest rates contribute to increased capital flows and shocks in flows affect the cost of capital among other dynamic relations. We precede the VAR analysis by a detailed examination of endogenous break points in capital flows and the other variables. These structural breaks are traced to the liberalization of emerging equity markets.

Medicare, which provides health insurance to Americans over the age of 65 and to Americans living with disabilities, is one of the government's largest social programs. It accounts for 12 percent of federal on- and off-budget outlays, and in fiscal year 1999, $212 billion in Medicare benefits were paid. The largest shares of spending are for inpatient hospital services (48 percent) and physician services (27 percent). In thirty years, the number of Americans covered by Medicare will nearly double to 77 million, or 22 percent of the U.S. population.

The Great Divide in economic and financial development and the convergence in financial architecture among the successful countries raise fundamental questions about how financial development interacts with economic growth. Is it possible to engineer a development takeoff by creating a modern financial architecture from scratch? Or are financial institutions and markets a reflection of underlying conditions in the real sector? Or are both financial development and economic growth driven by some other underlying variables?

The logic of consolidation became a controversial mantra of the real estate industry during the late 1990s. Five years later, the empirical research on economies of scale cannot resolve the debate. In an industry as fragmented as real estate, market dominance and pricing power is exceedingly hard to establish.

This research investigates whether oil and gas producing firms use abnormal accruals and hedging with derivatives as substitutes to manage earnings volatility. Firms engaged in oil exploration and drilling are exposed to two kinds of risks that can cause earnings volatility: oil price risk and exploration risk. Firms can use abnormal accrual choices and/or derivatives to reduce earnings volatility caused by oil price risk, but cannot directly hedge the operational risk of unsuccessful drilling.

We investigate the relation between dividend changes and future profitability, measured in terms of either future earnings or future abnormal earnings. Supporting "the information content of dividends hypothesis," we find that dividend changes provide information about the level of profitability in subsequent years, incremental to market and accounting data. We also document that dividend changes are positively related to earnings changes in each of the two years after the dividend change.

We provide an analysis of real economic growth prospects in emerging markets after financial liberalizations. We identify the financial liberalization dates and examine the influence of liberalizations while controlling for a number of other macroeconomic and financial variables. Our work also introduces an econometric methodology that allows us to use extensive time-series as well as cross-sectional information for our tests. We find across a number of different specifications that financial liberalizations are associated with significant increases in real economic growth.

Did analysts contribute to perpetuating the stock market bubble of 2000? In my view, a considerable analysis during the bubble was suspect. I lay out here what I see as the mistakes, as a matter of historical record. My aim, however, is not just to document the poor thinking during the bubble, but to convey what good, orderly thinking about fundamental value involves—to avoid mistakes in the future.

For the past four decades, dozens of researchers have studied consumer price knowledge, often with disagreements on the extent of consumer' ignorance about prices. While some of these disagreements have been attributed to research design variations among studies, no inquiry has yet been made on the role of the economic environment on consumer price knowledge. Nevertheless, environmental factors such as interest rates, unemployment, and economic growth may significantly influence consumers' knowledge of prices.

Multidisciplinary evidence suggests that people often make evaluative judgments by monitoring their feelings toward the target. This article examines, in the context of moderately complex and consciously accessible stimuli, the judgmental properties of consciously monitored feelings.

Traditionally the management of brands has been entrusted to middle management. However, it is becoming increasingly apparent that brands are of such critical strategic importance, that they are more appropriately placed under the direct responsibility of senior management. Indeed, we believe that senior managers should act as brand custodians. For this new responsibility, senior managers need integrative overviews of brands and their management.

Despite the importance of decisions regarding international brand names, research on brand naming has focused primarily on English name creation. The authors conceptualize the local brand-name creation process in a multilingual international market. The authors present a framework that incorporates (1) a linguistic analysis of three translation methods—phonetic (i.e., by sound), semantic (i.e., by meaning), and phonosemantic (i.e., by sounds plus meaning)—and (2) a cognitive analysis focusing on the impact of primes and expectations on consumer name evaluations.

The authors urge that modern strategic theory is robust and provides a solid foundation for legal policy. The striking breakthrough of strategic theory was to establish that predatory pricing can be rational economic behavior.

The authors suggest that people strategically manage—specifically, lower—their expectations to increase future satisfaction. Consumers who are more disconfirmation sensitive, that is, those who are more satisfied (dissatisfied) when a product performs better (worse) than expected, are hypothesized to have lower expectations. In contrast, the authors expect that consumers who are perfectionists will have higher expectations than those who are not. Results from a laboratory experiment and a field study are consistent with the hypotheses.