Andrea Mattozzi, Marcos Y. Nakaguma, 23 July 2022

Committees are often tasked with key decision making, yet a committee is not a singular unit but a group of individuals. This column provides a framework to assess the effect of making public individual votes in committees where members differ in competence and bias, and are concerned about external perceptions of their competence. While public voting attenuates the potential biases of competent members, secret voting attenuates the potential biases of incompetent members. Hence, transparency leads to better decisions when members are highly influenced by ideological or self-interested motives, and secret voting performs better otherwise. 

Michael Ehrmann, Robin Tietz, Bauke Visser, 29 June 2021

Most of the Reserve Bank presidents of the Federal Open Market Committee of the US Federal Reserve System have rotating voting rights. This column discusses new evidence that having the right to vote makes them more involved, which affects their meeting interventions and their inter-meeting speeches. This matters for financial markets – asset prices react less to speeches delivered by presidents when they have the right to vote. The authors argue that this is consistent with changes in the speeches’ information content.

Benjamin Enke, Thomas Graeber, 18 April 2020

When making economic decisions, people are often aware that they do not know the optimal thing to do. Traditional models of economic decision-making do not account for this ‘cognitive uncertainty’. This column argues that cognitive uncertainty predicts economic actions and beliefs because, in binary settings, it induces people to implicitly compress probabilities towards a 50:50 ‘mental default’. This partially explains behavioural anomalies in choice under risk, choice under ambiguity, belief updating, and survey forecasts of economic variables.

Santosh Anagol, Vimal Balasubramaniam, Tarun Ramadorai, 17 January 2019

Although economic agents should discern signals from noise when drawing from experience, recent evidence suggests decision-making can be based on both noise and signal components. This column uses a natural experiment of IPO lotteries in India to show that randomised gains cause winning investors to increase applications to future IPOs and substantially increase portfolio trading volume in non-IPO stocks relative to lottery losers. Investors appear to draw inferences about their skill from noise. 

Arnaldo Camuffo, Alessandro Cordova, Alfonso Gambardella, 06 January 2018

Entrepreneurs often predict future revenues using rules of thumb. The column argues that by testing precise hypotheses, 'scientist-entrepreneurs' would be less likely to invest in failures. A randomised controlled trial among Italian start-ups showed that this technique increased average returns for entrepreneurs. Used more generally, the precision effect may help screen out bad business ideas at an early stage.

Charles Manski, 27 October 2017

In medical treatment, it is assumed that adherence to clinical practice guidelines is always preferable to decentralised clinical decision-making, yet there is no welfare analysis that supports this belief. This column argues that it would be better to treat clinical judgement as a problem of decision-making under uncertainty. In this case there would be no optimal way to make decisions, but there are reasonable ways with well-understood welfare properties.

Itzhak Ben-David, John Graham, Campbell Harvey, 20 August 2016

Experiments have revealed that humans often suffer from overconfidence in the accuracy of their information, or ‘miscalibration’. This column uses data from surveys of CFOs to assess their ability to make financial predictions. The results suggest not only that CFOs are miscalibrated, but also that firms with miscalibrated executives appear to be more aggressive in their corporate policies. In other words, the overconfidence of the executive shows up in the company’s policies.

Philipp Strack, Paul Viefers, 16 October 2014

Regret can shape preferences and thus is an important part of the decision-making process. This column presents new findings on the theoretical and behavioural implications of regret. Anticipated regret can act like a surrogate for risk aversion and could deter investment. However, once people have invested, they become attached to their investment. This commitment is higher with better past performance.


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