The recursive approach to time inconsistency

We introduce a new class of finite horizon stochastic decision problems in which preferences change over time, and provide a proof of the existence of a recursively optimal strategy. Recursive optimization techniques dominate many areas of economic dynamics. However, in decision problems in which tastes change over time, the solution technique most commonly applied is not recursive, but rather strategic (subgame perfection). In this paper we argue in favor of the recursive approach, and we take the necessary theoretical steps to make the recursive methodology applicable.     

Twitter investor sentiment and corporate earnings announcements

We examine the impact of firm-specific investor sentiment (FSIS) on stock returns for negative and positive earnings surprises. Using a measure constructed from firm-specific tweets, we find that FSIS has a greater impact on stock returns for negative relative to positive earnings surprises. We further show that the impact of FSIS is greater for firms whose valuation is uncertain and difficult to arbitrage. Moreover, we provide evidence of return reversals over post-announcement periods. Our results highlight the importance of FSIS around earnings announcements.     

Incumbency preservation through electoral legislation: The case of the secret ballot

The secret ballot was designed to eliminate the incentive for candidates to purchase votes through direct vote buying. When voters have private information on their candidate preferences, incumbent candidates will generally be less efficient in purchasing votes than their challengers. Incumbent candidates may therefore benefit from the elimination of direct vote purchasing. Viewed in this vein, passage of secret ballot laws by state legislatures can be seen as an institutional mechanism to protect their incumbency advantage, rather than as an act of necessary electoral reform to create fair elections and protect democracy. Submitted: May 25, 1999 / Accepted: July 24, 2000     

Coordination, Differentiation, and the Timing of Radio Commercials

This paper examines the timing of commercial breaks by contemporary music radio stations. A simple model shows that stations may prefer, all else equal, to choose the same times (coordination) or different times (differentiation) for breaks depending on how listeners behave. It also shows that how much commercials overlap in Nash equilibrium should vary in different ways with observable market characteristics, such as the number of stations, depending on whether stations prefer to coordinate or differentiate. Panel data on the timing of commercials by 1,094 stations provide consistent support for the hypothesis that stations prefer to coordinate on timing .     

INTERPRETATIONS ON AUTOMATIC: A DIFFERENT VIEW OF STRATEGIC ISSUE DIAGNOSIS*

Models of strategic decision-making and environmental scanning typically assume that decision-makers diagnose issues actively, using conscious and intentional effort to identify and to interpret potentially significant events, developments and trends. This article establishes that conditions in organizations put decision-makers ‘on automatic’in their diagnosis of strategic issues, with direct implications for the process and content of strategic action. Implications for theory and practice are established.     

Predatory Pricing and the Speed of Antitrust Enforcement

A common complaint is that in certain industries antitrust action against predation istoo slow to ensure that a true victim can survive until the antitrust process has beenconcluded. This paper discusses, in the context of two recent antitrust cases, the sources of delay in the antitrust process, and different policy reforms aimed at speeding up the process or otherwise protecting a true victim.